Why inventory to sales ratio is a laggin indicator?
While I was studying business cycles it came to my mind that the inventory to sales ratio represent expectations about economic activity. For example, when an economy is in a recessionary trough inventories may become depleted more quickly once sales growth begins to anticipate the expansion, meaning that the ratio will be lower and that a recovery for the economy is coming. Wouldn’t this be a leading indicator instead of a lagging one?
Please correct me if I’m wrong or I misunderstanding the concept,
Thanks in advance and best regards,
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