Wednesday, March 24, 2010

Business investment up strongly

Capital goods orders—a good proxy for business investment—rose 1.1% in February, and are up at an annualized rate of 13.4% since their low of last April. As the chart shows, capex is rising at a faster rate in this recovery than it did following the 2001 recession. Business investment is still very depressed, as are a lot of things, but activity seems to be coming back on line at a faster-than-normal clip these days. That's exactly the way the economy should be behaving, according to Milton Friedman's Plucking Model of growth: the deeper the recession, the faster the recovery.

Durable goods orders—a broader classification which includes capital goods plus orders for aircraft and defense-related goods—were also up in February, and have risen at an annualized rate of 13.8% since last April. Both measures reflect a relatively strong investment climate, and, by inference, a reassuring rise in business confidence. All augur well for future growth.


Bill said...


I know you've posted before on European debt problems, but do you think the Fitch downgrade and problems getting support from the EU on Greece is a serious concern to overall global recovery or do you think it's overblown?

John said...

The durable goods and capital goods orders are good news. Thank you for your update.

Housing still seems to be suffering. Hopefully this too will pick up in the next few months. The banks need this sector to improve. I still think the fed stays on hold with rates until housing and umployment show clear signs of recovery. Not there yet IMO. A stronger dollar helps the fed stay loose. As you said in your 'strong dollar doesn't hurt' post recently, it helps control inflationary pressures.

Thank you for this site. I read everything you post. Its terrific.

Benjamin Cole said...

I just wish it was the 1990s again. Every chart you post brings back misty-eyed nostalgia to me--and the old smell of profits and jobs.
Look at the 1990s on this chart.
Man oh man.
Then look at the 2000s.

Andy said...

Scott - Thanks very much for your comments - they're excellent. Here's a somewhat unrelated question - any idea why 10 year swap spreads are negative 7.5 bps? As far as I can tell, they've never fallen below 35 bps prior to this.

Scott Grannis said...

Andy: see my latest post. Your question came just as I was preparing it.

Scott Grannis said...

Bill: I know that concerns over Greece and the downgrade of the PIGS has caused quite a bit of turmoil in Europe, but I find it hard to believe that this threatens the global recovery. Despite all the hoopla, credit default swap spreads are still relatively low, and the debt that might be defaulted on is a very small percentage of total sovereign debt. Plus, if the debt problems force a reduction in profligate government spending, this would be a strong positive for confidence.