September orders for new capital goods were a bit weaker than expected, but this notoriously volatile series needs to be viewed from a perspective that includes several months or more. Over the past six months, orders are up at an 8.3% annualized rate, which is a good deal faster than the pace at which orders grew 15 months after the end of the 2001 recession. Over the past year, orders are up almost 14%, a pace that rarely has been exceeded in the past 20 years. I see nothing here to worry about, and it's worth noting that U.S. companies are still sitting on a trillion-dollar pile of accumulated profits; if the outlook for fiscal policy improves and corporate taxes are cut, that profits pile could power some truly impressive investment in the future.
As a side note...
ReplyDeleteGallup's Job Creation Index which
is a daily poll of workers hit 15 today....highest level since September 2008...
http://www.gallup.com/home.aspx
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ReplyDelete"and it's worth noting that U.S. companies are still sitting on a trillion-dollar pile of accumulated profits; if the outlook for fiscal policy improves and corporate taxes are cut, that profits pile could power some truly impressive investment in the future."
ReplyDeleteWait a minute. Wouldn't investments to grow the business defray corporate taxes? Wouldn't higher taxes actually incentivise those investments? Wouldn't lower taxes just incentivise profit taking?
John: you should learn more about how taxes affect the decision to invest. Most liberals, in my view, are deficient in this regard.
ReplyDeleteThe second derivative of capex orders is negative. That's a "brown shoot".
ReplyDeleteThe growth rate of capex shipments (the equipment & software component of the GDP accounts) was cut in half Q3 over Q2. You ought to revise your "outlier" GDP growth trajectory down.
Corporate debt to cash ratios aren't going to power anything, particularly since a fair chunk of that cash is unrepatriated off-shore.
I am not trying to contradict anyone here but a few things are starting to percolate in the utility industry. There are some pretty big projects being announced. Among the largest are transmission lines. These are complex projects and are highly capital intensive.
ReplyDeleteGoogle is involved is a hugh undersea electical transmission line to move cheaper electricity from Virginia to NYC.
Northeast utilities is building a 1200 megawatt line linking Quebec and power hungry New England.
In the west Idaho Power is partnering with Rocky Mountain Power for a 1100 mile transmission line to move power between Wyoming and Idaho.
There are many many others. This is an indication of confidence returning to the industry. Some of these are multi billion dollar projects and involve long lead times. Commitments like these are not made without a strong belief in future demand.
I realize this is anecdotal but it is also a relatively new development. With interest rates low and lead times long, a window for these huge projects is open and these managements know it. There is likely much more to come.
Scott: Per your suggestion, I'm trying to learn a bit more about corporate taxes. I found this GAO report that says about two-thirds of corporations have no tax liability.
ReplyDeletehttp://www.gao.gov/new.items/d08957.pdf
It's interesting stuff.
Next, I want to delve into (1) the difference between statutory and effective tax rates, and (2) the amount of tax revenue collected from corporations vs. the dollars doled out in federal contracts. Thanks again.
That so many corporations have no tax liability is a testament to how much taxes affect corporate behavior. When marginal corporate tax rates are high, as they are in the U.S., the value of tax avoidance strategies increases significantly. The other thing to consider is the proliferation of targeted tax breaks and loopholes. It would be far better to lower tax rates and eliminate all deductions. Better still would be to eliminate the corporate tax altogether, since in the end it is consumers who pay the tax, not corporations.
ReplyDeleteScott: I think I'm with you on this one. Eliminate corporate taxes and corporate welfare. Corporate taxes reinforce the absurd notion of "corporate personage."
ReplyDeleteSort of like a corporation, when I'm taxed, I just pass that along to the businesses in the form of shopping I'm not going to do.
And, inspired by those with more business accumen, I don't think I'll buy a house in this crummy town unless I get at least 5 years worth of property tax amnesty.