The Compound and Friends · Monday, July 13, 2026
Colas and the host agree that a shift to a services-based economy has reduced the impact of inventory overhangs, a key driver of past recessions. The host explains how high inventories in manufacturing can lead to production cuts, layoffs, and a rapid economic downturn, a chain reaction less likely in services.
“It is absolutely true. That a services-based economy is less cyclical. Simply because the overhang of high inventories in an industrial, more production-based economy is the thing that tips you into recession when when people stop ordering more parts, they start discounting what they have. Profits fall, employment falls. There's a whole daisy chain of things that flow from that.”
“If we're less, if we're less reliant on physical inventories, it takes away one of the key drivers of what starts a recession in the first place. Do you agree that that's the cause and effect? That is the cause and effect.”
“That reduction in production means immediate layoffs at the automotive level, not just at the assemblers but all the parts companies, all the suppliers around them, and it cascades extremely quickly.”