{"id":9707,"date":"2021-07-12T18:26:18","date_gmt":"2021-07-12T18:26:18","guid":{"rendered":"https:\/\/zackspcg.com\/blog\/?p=9707"},"modified":"2022-02-26T13:05:52","modified_gmt":"2022-02-26T13:05:52","slug":"mitch-looks-at-some-underappreciated-fundamental-economic-signs","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/mitch-looks-at-some-underappreciated-fundamental-economic-signs\/","title":{"rendered":"Mitch Looks at Some Underappreciated Fundamental Economic Signs"},"content":{"rendered":"\n

Megan C. from Stamford, CT asks: <\/em>Hi Mitch, Hope it\u2019s\nbeen a nice summer. I know the economy is doing well at the moment with lots of\nspending and travel. Is there anything else you see indicating strength that\npeople are not talking about as much?<\/p>\n\n\n\n

Mitch\u2019s Response: <\/strong><\/p>\n\n\n\n

There are plenty of positive, underappreciated fundamental\nindicators in the U.S. economy at the moment! I\u2019m glad you asked this question.\nIt offers me a good opportunity to remind investors that most of what we see in\nfinancial media coverage \u2013 higher consumer spending, busy travel, restaurants,\nand hospitality scrambling for workers, inflationary pressures \u2013 are largely\npriced into markets. If the data is widely known and discussed, it probably\ndoes not have much pricing power.1<\/sup><\/p>\n\n\n\n

One key area of underappreciated strength is business\ninvestment. We\u2019ve seen a trend in the U.S. where companies are increasing\norders for machinery, software, and other equipment to expand productivity\n(given the tight labor market) but also to reshape their businesses in the wake\nof the pandemic.<\/p>\n\n\n\n

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Nonresidential private fixed investment, which is the\neconomist measure of business investment, increased at a seasonally adjusted\nannual rate of 11.7% in Q1, following double-digit increases in Q3 and Q4 of\nlast year. The biggest outlays in spending came in software and tech equipment,\nwhich makes sense as businesses prepare for a future of less customer contact\nand more of a hybrid work model. As you can see in the chart below, business\ninvestment has now eclipsed pre-pandemic highs:<\/p>\n\n\n\n

\"\"
Source: Federal Reserve Bank of St. Louis3<\/sup><\/em><\/strong> <\/figcaption><\/figure>\n\n\n\n

Another measure of\nbusiness spending is to look at orders for nondefense capital goods, which to\nnote are near the highest levels since the 1990s (when recordkeeping started).\nAs I mentioned earlier, businesses are noticing a landscape of scarce workers,\nand are thus spending on equipment and other capital to increase productivity. <\/p>\n\n\n\n

In the last\neconomic recovery (2008-2009), worker productivity took a long time to recover,\nand businesses largely turned to hire workers because labor was cheap. In this\nrecovery, labor is tight, which is driving businesses to spend more on capital\ninstead. I think U.S. capital spending could continue soaring past pre-pandemic\nlevels in the coming quarters, which would make its pace incredibly faster than\nbusiness investment after the 2008 Financial Crisis. <\/p>\n\n\n\n

I think this is a\nmajor underappreciated fundamental that could drive another leg of the recovery\nforward after this initial surge in consumer spending tapers off. <\/p>\n\n\n\n

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While the media focuses on inflation and labor issues, some positive economic indicators don’t get headlines.<\/p>\n","protected":false},"author":3,"featured_media":7436,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[66,71],"tags":[],"class_list":["post-9707","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-mitchs-mailbox","category-private-client-group"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/9707","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=9707"}],"version-history":[{"count":1,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/9707\/revisions"}],"predecessor-version":[{"id":10359,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/9707\/revisions\/10359"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=9707"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=9707"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=9707"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}