Thursday, January 29, 2009
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.
Posted by Scott Grannis at 8:17 AM