Wednesday, June 24, 2009
Capital goods orders—the seedcorn of future productivity—have been relatively stable to somewhat higher so far this year, as the first chart shows. That's another "dog that didn't bark," since with all the doom and gloom out there it shows that businesses are not completely retrenching. When confidence in the future once again builds, businesses have a lot of profits that they have been accumulating which can be used to fuel new capex. As the second chart shows, corporate profits after tax have doubled since late 2001, but as the first chart shows, capex has not risen at all on balance.
If the stimulus plan had been thought through instead of rammed through, it would have paid attention to details such as this. It would have given businesses an incentive to invest in the future by cutting corporate taxes, and that would probably have resulted in lots of new spending on the "shovel-ready" projects any good corporation has sitting on the shelf, waiting for the right environment.
So this is all a sad story, one of opportunities passed over. But it is not a story of collapse. It goes back to one of the key factors that drove this financial crisis, and that was a lack of confidence. If confidence can be restored, new investment spending will follow. It's never too late for that.
Posted by Scott Grannis at 8:06 AM