Thursday, July 25, 2013

Business investment picks up


June capital goods orders beat expectations (+0.7% vs. +0.6%), even after May orders were revised upward by over 1%. Orders are now up at a 19% annualized pace over the past six months, and up 7.1% over the past year. Orders had weakened noticeably last summer, as uncertainties over the "fiscal cliff" weighed on business confidence. That uncertainty was favorably resolved, and this measure of business investment is now at a new all-time high.

The broader durable goods orders (which includes volatile defense and aircraft orders) has also reached a new all-time high, and is now up almost 11% in the past year.

Capital goods orders are the seed corn of future productivity growth, and a good barometer of business confidence in the future, so today's news is encouraging. The private sector is now the economy's main engine of growth, which is as it should be.


Thanks to the unprecedented postwar decline in federal spending relative to GDP in recent years (see above chart), the government is getting out of the way and the private sector has more room to breathe. The economy still faces strong headwinds, in the form of higher marginal tax rates and heavy regulatory burdens, but it's hard to keep the private sector of the U.S. economy down if left to its own devices. In my experience, it never pays to underestimate the ability of the U.S. economy to overcome adversity.

2 comments:

Benjamin said...

You gotta love the 1990s. Look a federal spending to GDP....

albina N muro said...

The economy still faces strong headwinds, in the form of higher marginal tax rates and heavy regulatory burdens, www.bancdebinarydemo.com