GDP numbers signal more slowdown

A man looks into a shop window in lower Manhattan November 25, 2008 in New York City.

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Kai Ryssdal: I just wish there was a way to start without telling you this -- the Gross Domestic Product last quarter withered like we haven't seen since 1982. The economy produced 3.8 percent less stuff October through New Year's than it did at the end of the summer. Believe it or not, that was better than anybody thought it was going to be. But this is one of those stories where there are numbers hiding behind the headline data that tell us there's even worse news to come, as Marketplace's Mitchell Hartman explains.


Mitchell Hartman: Here's the deal: Gross Domestic Product counts everything made in the economy, including stuff that's made and then sits around on a shelf somewhere -- in a factory, a warehouse, or a local store -- not getting sold. These inventories have been building up fast. Sales, meanwhile, have been falling hard. That means the whole supply chain is backing up, according to economist Nigel Gault of IHS Global Insight.

Nigel Gault: And that says that as we go into the first quarter there are going to have to be some sharp production cutbacks in order to work off those excess inventories.

The production backup starts at the other end of the supply chain with customers who aren't buying, meaning retailers aren't ordering from wholesalers. To see this process in action I headed to a commercial strip here in Portland, Ore.

Langlitz Leathers has been making jackets, saddlebags and the like for the biker crowd for more than 60 years. Manager Dave Hansen says sales have slowed in the past six months, though not disastrously. He's managing that by running lean.

Dave Hansen: We are trying keep our inventory from getting out of hand. We don't want to expand inventory, so there's no point in stocking all the odd sizes in a tight economy.

Just up the road is Portico Furniture. Its counters are chock full of vases, picture frames, the odd throw-rug. Johan Meijer is the owner.

Johan Meijer: It's more like the lamps, the accessories, that I'm ordering way less of.

Meijer says he hasn't seen a sales slump this bad in the seven years he's been in business.

Meijer: Overall the sales are quite a bit down. And what I'm doing is trying to refocus my business and trying to do more custom furniture, more local furniture.

That way, Meijer says, he won't have to order as many sofas and coffee tables from suppliers.

I'm Mitchell Hartman for Marketplace.

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