A prominent feature of economic fluctuations in the United States is the part played by changes in inventory investment, i.e., in the net flow of goods into or out of commodity stocks held by the business system. These changes accounted on the average for 23 per cent of the changes in Gross National Product in the five upswings and for as much as 47 per cent in the five downswings that occurred during the twenty years between the wars. In the period since the war the recessions of 1948–49 and 1953–54 have been strongly marked each time by a cutback in inventory investment. The quarterly data now available show that this accounted for practically the whole decrease in GNP from the fourth quarter of 1948 to the third quarter of 1949, and again from the second quarter of 1953 to the first quarter of 1954, according to the last figures reported.

The large share of inventory changes in the ups and downs of business activity cannot be explained without reference to the timing as well as the extent of the swings in inventory investment. If these swings occurred irregularly, their share in the fluctuations of aggregate output could easily turn out to be zero or even negative. In reality, net inventory investment fluctuates closely—more closely than we might perhaps expect—with the volume of activity (not with the rate of change in activity).