Thursday, January 29, 2009

Capital spending has slumped only mildly

With data through December now available, we see that capital goods orders have dropped only mildly from their recent highs. Weakness in capital spending in this recession has been only a fraction of what it was in the 2001 recession. What is most notable, however, is that while capital spending today is running at about the same rate as it was just before the last recession, corporate profits (economic profits, as measured by the NIPA) have more than doubled. Corporations have amassed huge stores of profits, much of it in the form of cash, and that is helping to cushion this downturn. Once confidence returns—or better yet, if corporate tax rates are cut—we could see a significant improvement in capital expenditures which could power the economy to new highs in fairly short order.

4 comments:

atempe said...

Scott,
Due to the severity of the global downturn, would you anticipate capital goods orders would continue to decline throughout the rest of this year to levels equal to the 2001 recession? Also I have heard nothing from Capital Hill about corporate tax breaks. Do you still hold out hope corporate/business tax breaks might happen this year? Thanks.

Scott Grannis said...

I've been thinking this economy could turn around much faster than most people think. I haven't given up on that hope, and I think there is still a decent chance for the stimulus package to become less spending oriented and more tax oriented. Cutting business taxes is such an obvious solution. Indeed, I'm seeing more and more articulate opposition to the stimulus package. This is also what I hoped to see. If the anti-spending-stimulus momentum picks up, this could have a very happy ending.

I am a believer in good ideas triumphing over bad. And when there is almost a trillion dollars at stake, I have to believe that the chances of the stimulus bill passing as is, and quickly, are rapidly declining.

GlennK said...

Don't u people ever get it? We had 8 yrs. of spend and borrow with taxes cut for business and top rate earning individuals and look what happened! yet, you cling to this absurd notion that just lowering taxes will create a turn around. BS! We gave the banks billions and they did what with it? They spent it on themselves because that's what the rich do. They create nothing but more debt. We need to put more $$ directly in the hands of people in need. The millions that are already unemployed and the millions more these so called business man will lay off soon even if u cut their taxes to zero! Enough with this trickle down nonesense it doesn't work never has never will.

Scott Grannis said...

GlennK: I suggest you read through my posts back to last September. There is a lot about why and how this all happened that you don't understand.