Nonresidential business fixed investment (capex) accounts for only 14% of total GDP, whereas consumer spending accounts for 68%. Capex is also far more volatile a component, and its contribution to GDP from one quarter to the next can often swing quite substantially. This volatility was certainly apparent in 2018, when a major lift was expected following the Trump corporate tax cut (from 35% to 21%). However, while capex growth did rise by 11.5% (quarter-on-quarter annualized) in the first quarter, it subsequently slumped to 2.5% in the third and 6.2% in the final quarter—the median real growth rate since 1999 has been 4.8%. In this week's Economics Weekly we examine what s been driving business investment during the current economic expansion and what the leading indicators of capex are telling us with respect to growth through the end of 2019.
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Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.