Capex slows down, but the outlook remains positive

Capital goods orders (a good proxy for business investment) have not been very strong of late, growing at roughly a 5% annual rate over the past six months. But over the past year they are still up by an impressive 11%, and the pace of recovery following the recent recession has been much stronger than what we saw coming out of the 2001 recession. Pessimists will view the slowdown as a precursor to an economic slump, while optimists will see it as a pause that refreshes after last year's outsized gains. Other, temporary, factors likely account for at least part of the slowdown, e.g., bad winter weather and the Japanese tsunami.

In defense of the optimistic view, I note that Commercial & Industrial Loans have risen at a 13% rate over the past three months, and I take that as a sign of increased business optimism and an increased willingness on the part of banks to engage in new lending. C&I Loans are made primarily to small and medium-sized businesses, so increased access to credit is likely to fuel some badly-needed growth in this vital job-producing sector of the economy.