Business Capex Rolling Over
It is increasingly apparent from the many economic signals we have seen that business spending is fading, and is unlikely to replace consumer spending anytime soon. This is one of the reasons are recession expectations keep ticking higher, beyond 50%.
Nothing makes the end this clearer than the following chart, courtesy of Bob Bronson:
Wednesday, April 11, 2007 | 02:00 PM | Permalink
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The US economy has become so financially engineered that no one even attempts to plan for the longterm.
Posted by: Shrek | Apr 11, 2007 11:51:55 AM
I track nondefense, nonaircraft capital goods orders as well. That's a nice little chart. I do a simple year-over-year chart which makes it clear how suddenly whatever is going on has happened. If that trend continues, I'll start to worry.
For now, I find it inconclusive, since the data as a whole are mixed. Viz the CFNAI, the Chicago Fed's attempt to synthesize one indicator out of scores. It's been on a downtrend, but its last reading pointed merely at below-trend growth, not worse.
My thesis for now has been that "soft landing includes the word 'landing'," so I have tended to fade moves after pretty short periods. I am long and not short gamma, though, since it is so cheap and I think the chances of some move are not low.
Posted by: wcw | Apr 11, 2007 2:17:40 PM
although i tend to agree with the fears over business capex spending, i wonder whether shifts in the economy have reduced to some extent cap ex requirements.
i mean, how much cap ex does google have? yeah, they have to buy servers, but it's not like building a major manufacturing plant.
is anyone familiar with any work on this matter?
Posted by: howard | Apr 11, 2007 2:26:37 PM
Why aren't the oil distillers spending some of that profit? I think the answer crosses many industries.
Posted by: Greg0658 | Apr 11, 2007 3:37:11 PM
ps: and what happens when some business entity says lets build a plant and compete?
Keep funding Big Box takeovers until __?__
Posted by: Greg0658 | Apr 11, 2007 4:20:17 PM
I am not worried about a recession until ECRI
gives their signals.Those are the people who are spending every working hour trying to figure out ways to call a recession.If they are likely to be wrong so are everyone else.They are more credible to me, hence wait for their signal.So far market is yet to give any warnings.So long and strong as of now.
Posted by: jagmohan swain | Apr 11, 2007 4:51:56 PM
Is it meaningful to exclude military spending in today's environment? I have no perspective has to the relative size of Iraqi war spending to the chart. Blip? Major increase?
Any thoughts?
Posted by: NC Jim | Apr 11, 2007 4:55:37 PM
I've wondered that too, how much has the Iraqi war helped the economy? and what happens when we stop spending for it?
Posted by: Null | Apr 11, 2007 5:45:06 PM
ECRI.
MEW tapped out. Severe housing bubble. The best people who've had the most accuracy in their commentary over the past 6 months to a year say we are in the 3rd inning of the current housing/mortgage situation.
60% of Americans believe there will be a recession within 12 months. Businessmen are just trying to get one more nice bonus before retirement. Fear. Nervousness.
ECRI may be in over their heads on this one.
When AIDS came along, even with all the grand progress made in medicine, the early years were a disaster because they were dealing with something so different than they had seen before. While we still know too little, at least the medical establishment, in the developed countries, has their composure back. It promotes calmness.
ECRI may be short an algorithm or two when it comes to dealing with the current combination of circumstances and psychology affecting people. I’m quite puzzled why people don’t have a deeper sense of foreboding over our having stepped a little too far into the woods this time.
Posted by: Rick Hanley | Apr 11, 2007 8:31:12 PM
THE global economy should continue to enjoy its best run of buoyant growth for more than 40 years during this year and next, despite a sharp slowdown in the United States, the International Monetary Fund forecast last night.
Posted by: ManhattanGuy | Apr 11, 2007 9:53:12 PM
Rick,
Take a deep breath. :)
ECRI looks forwward in its forcasts. Nothing is infalable, but they're work has a strong, long term track record.
Getting caught up in the self feeding media spin is bound to get you involved in a crowded trade.
Posted by: Frankie | Apr 11, 2007 11:12:02 PM
Greg0658,
Distillers are ramping up capacity and throughput, primarily outside the OECD, and unlikely to be 'fully' realized until later in the decade.
Posted by: Juan de la O | Apr 12, 2007 1:40:01 AM
ECRI has been shown by a study to be a largely coincident indicator. I'm not convinced they are forecasting anything.
Posted by: Samuel | Apr 12, 2007 4:23:37 AM
Sam...by definition they are the opposite of a coincident indicator. They are LEADING indicators. CPI, ISM, employment #'s etc are coincident indicators.
TO BE CLEAR...ECRI is seeing a bottoming in the economy, and a slightly FALLING future inflation.
Kindly provide a link of the study that says otherwise.
Posted by: Frankie | Apr 12, 2007 7:58:15 AM
"Getting caught up in the self feeding media spin is bound to get you involved in a crowded trade." -- Well said Frankie.
Posted by: jagmohan swain | Apr 12, 2007 11:16:25 AM
From an earlier post by Barry:
"However, as the indefatigable David Rosenberg of Merrill Lynch points out, such a splendid performance reflects not so much any inordinate growth of revenues as the impact of an unprecedented mass of buybacks -- "
Secondly, say for example, Intel builds a plant in China for say
$2.5 Billion. Is that capex reflected in US totals? Where does it show up. Does it count if it is spent offshore?
When IBM fires 20,000 Americans and hires 50,000 Indians, how much capex was spent in this country?
I fail to see the surprise at no capex bailout. India invests in India, not the US. China invests in China, not the US. What do our high priced genius managers do? They invest in India and China.So what is the surprise.
Only now are we beginning to see that India and China do not need the high priced genius US managers and are coming to the US direct. I guess US managers thought that smart offshore labor would remain in their place. Surprise, or is it?
Posted by: me | Apr 12, 2007 11:22:29 AM
Which is what your doing with the ECRI. I don't buy them and they busted on the 1990 recession BADLY, even though they still try and spin it they didn't.
As they say, who gives a bleep about the ECRI?
Posted by: ac | Apr 12, 2007 11:16:14 PM
speaking of the next crowded trade
what came of that investigation on the 3rd server that comes online during real busy days
my computer wired brain worrys about the printque reservoir angle
and I'dda moved it farther out by now
Posted by: greg0658 | Apr 13, 2007 11:33:34 AM
and da
dump more often
Posted by: greg0658 | Apr 13, 2007 11:39:18 AM
Mr. Softy is doing his part:
Per Reuters:
"The software industry is traditionally a low capital expenditure business, but the building of these facilities is changing that business model.
Morningstar estimates that Microsoft's capital spending will rise 50 percent to $1.5 billion this fiscal year and expects that figure to grow another 50 percent next year to $2.3 billion. It is still only a small portion of Microsoft's estimated $50 billion in revenue this fiscal year."
Posted by: student_of_the_trade | Apr 15, 2007 3:01:19 PM
