Wednesday, August 14, 2013

Capital Spending Now and Then (excerpt)

We compiled a new publication titled, Capital Spending During Expansions. It compares the performance of all the major categories of capital spending in the real GDP accounts during the current economic expansion and during the previous six upturns. The current one is the second weakest, with a gain of 20.6% versus the 29.5% average for the previous ones.

The weakest components of capital spending in the current expansion are structures (down 8.5% vs. up 6.2%, on average, for the previous six expansions), information processing equipment (25.1% vs. the 71.9% previous average), and software (18.2% vs. the 66.4% previous average). The last two categories have experienced the weakest spending this recovery of all the measured periods. My hunch is that the Cloud has radically increased the productivity (bang per buck) of technology. In other words, less is more: Less IT hardware and software can do much more than in the past.

On the other hand, capital spending on transportation equipment is the best ever, up 224.4% this recovery vs. an average of 47.2% in the past. Spending on industrial equipment is about average, with a gain of 23.3% compared to the previous average of 25.7%. By the way, spending on overall real intellectual property products is the weakest of the seven expansions since 1961; real R&D (one of its components) is the third worst of the seven.

Admittedly, there isn’t much here to make the case for a capital spending boom in the US, especially if my more-bang-per-buck thesis is valid for technology. However, there could be booming demand overseas for capital goods made in the USA. The latest US trade figures show capital good exports (excluding autos) rising rapidly to a new record high of $554.6 billion (saar) during June. They account for 62% of nondefense capital goods shipments (including civilian aircraft).

Today's Morning Briefing: You Asked for It. (1) William Tell’s son. (2) Hazardous, but not dangerous work. (3) Investigating three open investment strategy cases. (4) June’s leading indicators bullish for Europe. (5) So are US exports to Europe. (6) US capital spending weakness led by structures and IT. (7) The Cloud increases IT’s bang per buck. (8) US capital goods exports are strong. (9) Leading indicators bearish for BRICs. (10) Latest earnings season mostly nonevent for overall earnings. (11) However, earnings downers included Health Care, Industrials, IT, and Materials. (12) Focus on overweight-rated Retailers. (More for subscribers.)

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