In Fortune, Shawn Tully has a great piece about how some economists are starting to see a solution to our current economic malaise: Capital Expenditures or "capex" for short. Capex is the major investments and purchases businesses make like building a factory, buying equipment like a plane, or investing in new product lines. You can read the article for yourself here:
http://finance.fortune.cnn.com/2014/04/02/hold-on-to-your-hard-hats-a-capital-spending-boom-may-be-coming/
In the article Mr. Tully talks about how some economists see capex as poised to rise and that this increase could have a huge impact on the economy. He says that "A resurgence in capital investment is what America's been waiting for. It would create a virtuous, self-reinforcing cycle of growth." While I have some concerns with the evidence of the economists he cites (one being improving CEO confidence, which could be due to other factors), he is correct that such a resurgence could pull our economy out of the funk we are in. Earlier in the article he points out that capex "Now stands at just over 12% of national output, compared with around 13.5% of GDP in 2007". If it were to grow by even half to its normal output it would have an outsized impact on our feeble economy.
The fear that I have though is that if this is occurring too rapidly that it might prematurely drive up prices as resources are bid up to meet business needs. The jump in prices might reduce the size of an investment (the company builds one less plant as prices eat into the budget) or it could reduce overall demand in the economy (price shocked consumers pull back on purchasing discouraging other companies from investing). Combine that with a summer that may already have high energy costs due to geo-political turmoil and a frigid winter in the US and the capex recovery could be over before it gets started.
On the other hand, businesses may invest regardless of the winds of economy. Many organizations think in 5 year business cycles, and while the recession may have thrown a wrench into the best plans times are different now. The recovery is occurring, albeit slow, and domestically our politics are in a relative tranquil period and may be for months to come. If there was ever a time to invest in aging infrastructure or new products, that time is now.
Hopefully the latter wins out over the course of the year, although only time will tell.
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