Capital Investment Continues to Stink

Would you invest in my business if I decided not to put my own money in? That’s the story in corporate America where CEOs are net sellers of their own stock and capital investment continues to fall.

Here are two charts on Durable Goods Orders. The blue line is the data as originally reported by the Census Department. The red line is the revised data just released from the same Census Department. Note that the revisions are sharply downward…never a good sign (charts courtesy of ZeroHedge):

Durable Goods Ex-Transportation New vs. Revised 1 - Durable%20goods%20Revision_0

Core Capital Goods (Non-defense Capital Goods excluding aircraft) is a subset of the Durable Goods Report. It’s the best available measure of business investment.

Core Capital Goods New vs. Revised 2 - Core%20Capex%20Revision_0

What these numbers show is that corporate capital spending is declining and that’s even before we found out that the numbers originally reported were way overstated. Another revision and maybe we can get these numbers down to zero. Do you wonder why the economic recovery in the U.S. is so anaemic, despite zero interest rates? It’s because companies are not investing in their businesses. Instead, they are borrowing money to speculate in their own shares and to play at financial engineering, tax avoidance and mergers.

Whenever capital spending drops the way it is now, recessions follow very quickly. Here is the evidence:

Core Capital Goods Orders vs. Recessions

The shaded areas in the above graph are recessions. We have not seen a plunge in core capital goods like this except in a recession.

So, to go back to my original question: why would you invest in corporate America if it doesn’t invest in itself?