You cannot store a haircut. That fact goes a long way toward explaining why the nature of the business cycle appears to have changed.
When an economy slows, and households and companies start to reduce their spending, they often cut back most on manufactured goods. A family gets by with a creaky washing machine for a year more than it had planned. A business, expecting future sales to be slow, uses up the goods sitting in its warehouse.
Many services are harder to do without. Consumers cannot keep extra plumbers' visits on hand or postpone spending on child care. College tuition, doctor bills and car repairs cannot be put off.
On the other hand, when good times seem to return, people do not get a few haircuts at a time. They might buy a new television, however, or, if they run a company, decide to build a factory.
The implications for the broad economy are obvious: The service sector does not shrink, or grow, as fast as the manufacturing sector. And the service sector now accounts for about 80 percent of all jobs in the US, up from 60 percent in 1960, as a result of the country's higher wealth and of the move of manufacturing jobs to other countries.
The manufacturers that have remained in the US, and the retailers selling their and others' products, have also been able to decrease the size of their own stockpiles. Many -- most famously Wal-Mart -- have used enormous computer databases to match inventory and sales levels more accurately.
The technology industry itself plays a role. Its products last a shorter time than, say, a car, and its factories need less time to build up or wind down.
"It's just a much shorter production cycle," said Robert Gordon, an economist at Northwestern University. "We will get an inventory bounce-back in 2002, but technology has less of an inventory cycle."
Even during the most optimistic days of the late 1990s, overall inventory levels remained about 10 percent lower than they did during the 1980s, relative to sales, according to Economy.com, a consulting firm in West Chester, Pennsylvania.
"By tying everyone together, technology has given everyone the same information at the same time," said William Stavropoulos, the chairman of Dow Chemical. "You're not always looking back, saying, 'I wish I did this.'"
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