Wednesday, May 25, 2011

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.


Benjamin Cole said...

Seems like a lot of yellow lights lately.

I hope for the best, but Japan is the model of what could happen to the USA.

We seem to falling in the large federal deficit, tight-money, deflationary trap that Japan has been in for 20 years.

I will be delighted to be wrong in my worries.

Public Library said...

Double top. Fed up to bat next with more money printing.

Benjamin Cole said...


I hope you are right, and Bernanke pours it on.

Scott Grannis said...

Why do people believe that printing money will stimulate the economy? It just creates more uncertainty about inflation and weakens the dollar. You cannot print or devalue your way to prosperity.

Public Library said...

I agree Scott. Was not thinking it was good at all but its' all Bernanke knows.

The world is fighting a currency war and the race ends at the bottom.