Magazine article Economic Trends

Business Investment

Magazine article Economic Trends

Business Investment

Article excerpt

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04.05.07

While the housing market and the subprime sector have dominated the media's recent coverage of the economy, other indicators of current and future performance have, for some reason, received less attention. One rather important determinant for both current and future performance is business fixed investment--spending by businesses on structures, equipment, and software. February's report on durable goods showed that new orders for capital goods had increased 7.6 percent, which appears to be a very healthy monthly increase. However, when one digs a little deeper into the report, that number is not so comforting.

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The report on capital goods orders is actually quite volatile, with monthly fluctuations of plus or minus ten percent not being that uncommon. Just as volatile components are removed from the Consumer Price Index to get a better idea of the underlying trend in prices, we might want to construct a core-type series for durables to get a better grip on their underlying trend. To do this for capital goods, we will first want to net out defense spending, since we are largely interested in what the private, and not the government sector, is up to. …

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