Seasonal adjustment effect on inventory behavior

If firms, faced with convex cost functions choose to smooth the rate of production in order that costs are minimized, one would expect that the rate of production will vary less than sales, with the variations in inventories absorbing much of the sales fluctuations. The evidence presented by Blinder, however, seems to indicate that the variance of production exceeds that of sales in retail industries and in manufacturing industries. The purpose of this paper is to examine the value of such evidence when the data used are seasonally adjusted aggregated data.