Are there any signs that the tax cuts and/or regulatory relaxation are stimulating increased non-residential fixed investment?
Non-residential capex has been rising since late 2016, as the first attached chart shows, triggered initially by the end of the meltdown in oil investment. Capex in the sector fell 64% peak-to-trough in the wake of the collapse in oil prices from mid-2014 through early 2016, depressing spending in an array of sectors dependent on demand from the oil business. The recent capex numbers are very strong, with the year-over-year rate at a hefty 6.9% in the first quarter of this year. But the incremental upturn in the first quarter, from 6.4% in Q4, is nothing like enough definitively to signal a response to the tax cuts. Note too that the capex intentions measure in the long-running monthly survey of small businesses, conducted by the National Federation of Independent Business, remains below its cycle peak, though it is nudging higher. I’m quite bullish on capex this year, but more because earnings are rising strongly, money is still cheap, and the need for replacement of ageing equipment is intense, rather than because of the tax cuts.
Ian Shepherdson, Chief U.S. Economist
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