Rapid increase in capital investment further boosts economic recovery

Business investment has emerged as a powerful source of US economic growth that is likely to help sustain a recovery.

Companies are increasing orders for computers, machines, and software as they become more confident in their outlook.

According to the Ministry of Commerce, non-residential fixed investment, which is a substitute for corporate spending, increased at a seasonally adjusted annual rate of 11.7% in the first quarter, driven by higher spending on software and technology equipment. Business investment also recorded double-digit growth in the third and fourth quarters of last year after declining during a pandemic-related outage. It is now higher than the pre-pandemic peak.

Orders for non-defensive capital goods With the exception of aircraft, another indicator of business investment is close to the highest level of record dating back to the 1990s, another Commerce Department figure shows.

Robert Rosener, Senior US Economist at Morgan Stanley, said: “In our economic outlook, that’s certainly one of the bright spots.”

Personal consumptionAbout two-thirds of economic production is driving the early stages of recovery. Americans are full of savings and government stimulus checks, spending more on goods and services that avoid much of the pandemic.

Strong capital investment, according to some economists, will be key to ensuring that recovery remains strong after fiscal stimulus spending increases and business resumptions eventually decline.

Increased business investment helps promote economic production. It also increases worker productivity, or productivity per hour. The indicator has grown at a slower pace since the last economic expansion, but is now showing signs of revival.

The recovery in business investment is becoming much stronger than in the years following the 2007-2009 recession. “Events, especially in late 2008 and early 2009, really pushed many companies to their limits,” said Phil Suttle, founder of Suttle Economics. “I think many of them said,’We have to be really cautious for a long time.'”

Currently, companies do not seem to be risk averse, he said.

After the financial crisis, businesses grew by adding workers rather than investing in capital. Employment was more attractive than fixed investment due to the abundance of labor and the relatively low Worker supply is tight.. Companies are raising wages to seduce their employees. As a result, many companies are increasing their incentives to grow by investing in capital.

Morgan Stanley economists predict that US capital investment will rise to 116% of pre-recession levels in three years. By comparison, it took 10 years for investment to reach these levels after the 2007-09 recession.

Company executives are increasingly confident in the economic trajectory. According to a survey conducted during May, the Business Roundtable’s Economic Outlook Index (combined employment and spending plans for large corporations and sales forecasts) increased 9 points in the second quarter to 116. It was slightly below the record high for 2018. In the second quarter, the percentage of companies planning to increase capital investment increased from 57% in the first quarter to 59%.

Joe Song, senior US economist at BofA Securities, said:

Song added that less uncertainty about trade tensions between the United States and China should further support corporate credibility and investment. “At the very least, companies will be able to understand the strategies the Biden administration is trying to follow and plan to avoid them,” he said.

Some of the recent increase in fixed investment reflects a silver lining Due to lack of raw materials That’s what many manufacturers have faced in the last few months.

“The backside of the supply chain bottleneck we see today is the increase in backlog,” said Rosener, who said it helped improve manufacturing activities.

According to a manufacturing survey by the Institute for Supply Management, demand for industrial products increased in May, and customer inventories hit a record low.

Manufacturing is a particularly capital-intensive industry. According to Rosener, it costs more to build a car than to serve a meal in a restaurant. Production could remain strong over the next few quarters as companies restructure their inventories, he said.

The long-term outlook for capital investment is bright. Economic uncertainty tends to weaken fixed investment, but economic turmoil like Covid-19 can support investment. Pandemics have forced businesses to minimize consumer-worker contact, resulting in a rapid increase in spending on digital technology to improve productivity, which many economists predict will endure.

“Every part of the service economy is using technology more aggressively,” says Suttle. “Obviously, it’s difficult to do that without buying more products.”

Write to Sarah Channy Cambon

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Rapid increase in capital investment further boosts economic recovery

Source link Rapid increase in capital investment further boosts economic recovery

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