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U.S.Business Investment Softens Temporarily

ByThe National Bank of Canada
Published 02/29/2012, 06:15 AM
Updated 05/14/2017, 06:45 AM

January’s durable goods report clearly pointed to a softening of business investment in the first quarter. The sharp drop in shipments of non-defense capital goods excluding aircraft means that this category, which is highly correlated to business investment, is now tracking -6% annualized in Q1. The expiration at the end of last year of incentives such as the 100% expensing of capital equipment is likely one of the major factors behind the moderation in business investment in early 2012. But that doesn’t preclude a positive outlook for business investment spending.

There’s still a 50% “bonus depreciation” on offer which allows businesses to write off half of their capital investment this year. With corporations sitting atop a record cash position and with negative real interest rates, conditions remain conducive for investment. Moreover, as today’s Hot Chart shows, the capital stock is aging, which argues for a continuation of the investment cycle. All that’s needed to open the investment floodgates, it seems, is for the cloud of economic uncertainty to dissipate somewhat.
U.S. Watch

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