Displaying items by tag: capex

(New York)

Here is a data signal most of the market is not paying attention to when it comes to recession forecasting: nationwide capital expenditure, or Capex. Morgan Stanley’s index of capex has shrunk to its lowest level in two years, as the high from the Trump tax cuts wears off for companies and they tighten purse strings. Capex growth is likely to weaken from 11% last year to just 3% this year. According to the deputy CIO of State Street, “Low capex growth is very worrying … You’re starting to see the trade tensions and the macro growth concerns play out in business confidence — companies won’t open a new factory if they think we’re on the cusp of a recession”.

FINSUM: This is a worrying sign but not wholly unexpected given the waning benefits of the tax cuts. However, even though this is expected, it does not mean it won’t hurt the economy.

(Houston)

When oil falls it tends to boost the US economy. For all the growth of our shale industry, the US is still a net importer of oil. When prices fall, Americans tend to spend more on other items that boost the economy, so oil prices sinking is usually good news. However, this time around, the fall will be bad, at least according to the Wall Street Journal. The problem is that the oil industry has grown large enough that capital expenditures in the sector make a major impact on growth. Accordingly, the capex cut that will come from falling prices will be prove a net detriment to GDP figures.

FINSUM: When oil fell in 2014-2016, US economic output also slowed, so this is a very real affect. What is worse is that it will likely show up in 2019, which is already looking to be a much weaker year.