Wednesday, August 24, 2011

Business investment continues to rise


New orders for capital goods fell as expected in July (they almost always do in the first month of each quarter), but the 3-mo. moving average (which corrects for this problem) continues to rise. However you measure it, orders are up 10.8% over the past year, they are still rising, and they are closing in on the pre-recession highs. Double-digit growth in business investment is hardly the stuff one would expect to see if the economy were flirting with recession, or if this were a jobless recovery or a New Normal economy, as so many seem to think.

Nevertheless, it continues to be the case that the recovery is sub-par, but it's not entirely the fault of the private sector. It is probably more accurate to say that the private sector is doing a pretty good job of growing the economy despite all the obstacles thrown in its path: e.g., trillion-dollar deficits which have soaked up every penny of record-setting corporate profits in the past two years, and huge increases in transfer payments which penalize work and reward idleness. Today's WSJ op-ed page has two more examples if you fail to see my point: "Rahm's Home Improvement," and Robert Barro's piece (which should be required reading in all Econ 101 classes), "Keynesian Economics vs. Regular Economics." If left to its own devices, the economy would undoubtedly be doing a lot better. 10% annual growth in business investment is pretty darn good, but the drag from misguided fiscal policy puts us in a "two steps forward, one back" mode.

5 comments:

Benjamin said...

Obama is making missteps; Bernanke is far too timid. Tough to see robust recovery here.

The Bush Administration was a train wreck into a sewage treatment plant, but these guys don't seem to know how to get us out.

Dr William J McKibbin said...

Benjamin, I agree -- whether we like it or not, the neither fiscal (Congress) nor monetary policy (Federal Reserve) have a solution -- ironically, now is a good time to get rich -- the future is much less certain from where I sit now that the government is giving up...

Benjamin said...

Dr-

The Fed has tools--Bernanke is just too timid.

We are getting Japanned.

Kurt said...

Perhaps more like four steps forward, three steps back.

Unknown said...

"...and they are closing in on the pre-recession highs."

Not trying to argue here, but when I look at that chart the economy has rolled over into recession twice when your capital goods average hit that peak. I understand your words, but based on that chart, we are rolling over into a recession soon. I must be missing something....