UCLA

In this paper, I provide evidence that the mean and dispersion of manufacturers' inventory growth are negatively associated with subsequent changes in economic output growth. I build and calibrate a heterogeneous-firm model with asymmetric adjustment costs to show that this macro-level association is consistent with firms' asymmetric response to news shocks at the micro level. The fact that firms adjust inventories in response to news shocks also highlights the role of inventories in signaling future economic conditions. Additional empirical tests show that inventory growth dispersion, computed from real-time accounting disclosures, can help improve the forecasts and estimates of future GDP growth.