Wednesday, September 28, 2011

Business investment still strong

August new orders for capital goods came in much stronger than expected (+1.1% vs. +0.4%), and July orders were upwardly revised by 0.7%, so the combination of the two has put this series back on a double-digit growth track. Four months ago, I noted that this series had really slowed down, but now the outlook appears much brighter. Back then, the annualized growth rate of capex over the previous six months was only 5%. After numerous revisions, the number is now 13.7%. Over the six months ending in August, capex is up at a very strong 18.4% annualized rate, and orders are now just 1% shy of their all-time high. What a difference a few revisions can make!

This news has to qualify as a major blow to the prevailing view that the economy is approaching "stall speed" and therefore at risk of slipping into another recession. Businesses are still facing terrible headwinds (e.g., the highest corporate tax rate in the industrialized world, mountains of new regulatory burdens, difficulties in getting loans), but they are nevertheless forging ahead with an optimism that is impressive. There is every reason to believe that the economy is still growing, albeit at a somewhat disappointing pace.


Charlie said...

Have you noticed how the HARPEX index ( has been dropping these past 6 months? Is this not a warning sign regarding a slow down in world trade (Freight)

Benjamin Cole said...

Businesses are investing--this also dispels the notion that somehow businesses are so afraid of the future they are jumping at Obama's shadow.

What this economy needs is more demand, about 15 percent more demand. We are so far under trend it is pathetic.

Sweden did well with a more-aggressive QE program than that of the United States (btw, Sweden is no longer the socialist nirvana---it has been making market reforms for years).

You can't suffocate the economy to prosperity....especially after a real estate bust.

Scott Grannis said...

I think it's tough to extract good info from Harpex right now. We know that a lot of new shipping capacity has come on line, and that European and US growth has slowed, so the decline in Harpex may simply be reflecting those facts, not telling us anything new.

Also, while the Harpex is down the Baltic is up quite a bit in recent months. What's the net message? I'm unsure.

Benjamin Cole said...

"The expected rate of inflation over the next 30 years, as measured by the difference between Treasury Inflation Protected Securities, Tips, and cash government bonds, dropped as low as 1.85 per cent in recent days from 2.73 per cent since last month. The rate was just under 2 per cent on Tuesday."--FINANCIAL TIMES.

Now, we have 9 percent unemployment, we are perhaps 10-15 percent below trendline GDP, and the inflation outlook has never been so low...why are some people wringing their hands about inflation?

I happen to agree that federal outlays should be cut, but Cochrane's recent piece is mystifying for two reasons: 1. The USA has no inflation. 2. Japan has deflation.

Ergo, a nation can run huge deficits and stay in deflationary gloom for decades, ala Japan.

I wish Cochrane would turn his estimable talents to telling us how not to be Japan. Like Milton Friedman did--and he said print more money.

Paul said...

"Businesses are investing--this also dispels the notion that somehow businesses are so afraid of the future they are jumping at Obama's shadow."


Benjamin Cole said...

Paul--The stats are there. Business is investing. They would invest a lot more if demand picked up.

BTW, I would happily vote for a Ron Paul (my favorite) or Mitt Romney (who has business expierence, although from the finance side, which is a lot easier than operations).

I look forward to any Preident, D or R or other, who cuts federal outlays to 18 percent of GDP, by shrinking social welfare, and reducing defense outlays by half or more. Paul is the only one willing to do that.

The other GOP'ers are deathly afraid to take on defense parasites and coprolite.

Department of Defense 3,000,000
Veterans Affairs 275,000
Homeland Security 250,000
Treasury 115,000
Justice 112,000
Energy 109,000
USDA 109,000
Interior 71,000

Labor 17,000
HUD 10,000
Education 4,487

There are three million voters just on Defense payrolls, and 500,000 more in VA and Homeland Security. They all get salaries and fat pensions. Most have families and relatives, adding to the voting block. Add on to that defense contractors and their employees---must be six or seven million voters out there dependent on federal outlays. This is socialism.

The GOP talks tough about cutting outlays. but since Eisenhower, they never talk about this.

Paul said...

"Paul--The stats are there. Business is investing."

They sure aren't hiring though, are they?

"They would invest a lot more if demand picked up."

And demand would pick up if the unemployment rate came down...Unemployment rate would come down if Obama would get his boot off the throat of the private sector.

William said...
This comment has been removed by the author.
William said...


According to Bloomberg's analysis, S&P 500 Companies paid an average of 16% in federal corporate taxes. Carnival Cruise lines paid 1%, Electronic Arts paid 0%, GE received a tax rebate, Google paid 22%.

"Google’s income shifting -- involving strategies known to lawyers as the “Double Irish” and the “Dutch Sandwich” -- helped reduce its overseas tax rate to 2.4 percent, the lowest of the top five U.S. technology companies by market capitalization..."