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Business investment still strong





August new orders for capital goods came in much stronger than expected (+1.1% vs. +0.4%), and July orders were upwardly revised by 0.7%, so the combination of the two has put this series back on a double-digit growth track. Four months ago, I noted that this series had really slowed down, but now the outlook appears much brighter. Back then, the annualized growth rate of capex over the previous six months was only 5%. After numerous revisions, the number is now 13.7%. Over the six months ending in August, capex is up at a very strong 18.4% annualized rate, and orders are now just 1% shy of their all-time high. What a difference a few revisions can make!

This news has to qualify as a major blow to the prevailing view that the economy is approaching "stall speed" and therefore at risk of slipping into another recession. Businesses are still facing terrible headwinds (e.g., the highest corporate tax rate in the industrialized world, mountains of new regulatory burdens, difficulties in getting loans), but they are nevertheless forging ahead with an optimism that is impressive. There is every reason to believe that the economy is still growing, albeit at a somewhat disappointing pace.

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