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Businesses are spending again

A recent report from the Bureau of Economic Analysis about the health of the economy in the fourth quarter of 2011 shows a 20 percent spike in investment -- a sign that businesses are back to spending, not hoarding, their money.

Headlines during the Great Recession and its aftermath regularly featured this adage: U.S. businesses are flush with cash but wary of spending it.

Last fall, things changed. 

“I think businesses are starting to spend finally,” said Daron Acemoglu, a professor of economics at MIT. “So I think we have probably turned a corner.”

According to a revised report last week from the U.S. Bureau of Economic Analysis, domestic investment in the private sector grew 20.6 percent in the fourth quarter of 2011.  That number is annualized -- meaning that if the economy grew for a whole year the way it grew in the fourth quarter, we’d see a 20 percent rise in companies spending money (rather than hoarding it).

The spike was a welcome change from the previous five quarters, when investment suffered anemic growth -- or none, in some cases. This information, compiled from the BEA report, is illustrated in the chart below.

 

I went looking for a good example of a company opening its wallet for both new factories and new employees. I found Saint-Gobain, a French firm that produces construction materials like glass, ceramics, and plastics.

In September 2011, the firm began building a 140,000-square-foot factory in Goodyear, Ariz., to make glass mirrors for solar panels. John Crowe, the CEO of Saint-Gobain’s North American subsidiary, told me that the plant is a “multimillion-dollar investment,” though the cost is not public.  The plant will provide 50 new jobs when it begins operation later this year.

Although Saint-Gobain didn’t shut off its investment tap in 2009 and 2010, Crowe said the company treaded more cautiously at the time.  Other companies did the same; it was that kind of caution that caused many businesses to tighten their wallets in these post-recession years.

But today Crowe is more confident about doing business in the United States.

“Many of our businesses are doing quite well right now, especially linked to the industrial U.S. economy,” said Crowe.  “I see the United States remaining a very vibrant economy for many years to come.”

Crowe’s confidence seems to be supported by data for the manufacturing sector, according to numbers from the Institute of Supply Management.

The ISM reported last week that the manufacturing sector completed its 31st consecutive month of growth.

President Obama and other politicians believe the manufacturing sector will be the fulcrum for the turnaround of the American economy, but details have been scant on how to do it. Manufacturing already accounts for a significant portion of U.S. private investment. In the fall of 2011, for example, 30.6 percent of private investment growth came from manufacturing spending. 

Even more heartening: Manufacturing was not the only area to see an increase in investment. Companies in the energy, communications and computer hardware sectors also markedly expanded their total investment in the fall of 2011. 

This all seems to indicate more support for that recovery we’ve been hoping for. Unemployment -- though still high -- has dropped over the past five months, and consumers are feeling more confident today than at any time over the past year

But looking into the future, it’s still unclear if a rise in employment will match the increasing pace of investment spending.

“The rebound in employment (might) come even later than the other jobless recoveries we have experienced in the last two decades,” said Acemoglu. 

While the old adage of the post-recession years appears to have broken down, it could be replaced by a new one: Investments surge, but jobs are still hard to find.

We will receive a new clue to this puzzle on Friday. That’s when the Bureau of Labor Statistics releases its jobs report for the month of February.

About the author

Karl Baker joined Marketplace in January of 2012. Before coming to New York, he worked as a commercial fisherman, an English teacher, and a part-time reporter for KBCS radio. He's also currently a student in business and economic reporting at NYU.
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