Summary
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A good number of observers today believe that business investment cannot rebound in the United States in the light of the very low production capacity rates prevailing.
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Yet, present conditions are extremely propitious for investment. After the worst collapse in machinery and equipment investment since 1960, the weight of this component in GDP is at its lowest point since 1965. It must now indubitably bounce back.
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U.S. firms have slashed their capital expenditures so much so that never before in the history of the United States has such a high consumption-to-GDP ratio been underpinned by such a low investment-to-GDP ratio.
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Consequently, we are of a mind that there is a pent-up demand for investment among U.S. corporations.
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What counts more here is the connection between profits and business investment rather than between business investment and production capacity rates.
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In this regard, the environment is very positive as far as earnings go, given that productivity has been raised for the first time ever during recession instead of recovery. Consequently, skeptics may well be confounded in the end.
