Good news amid the weak economy

Chris Farrell Aug 26, 2010

Good news amid the weak economy

Chris Farrell Aug 26, 2010


BOB MOON: Tomorrow, the government gives its revised estimate for the country’s economic growth rate. And leading economists are expecting slippage — from 2.4 percent growth to just 1.4 percent. No question the economy is weak, but is it really all that weak? Our economics correspondent Chris Farrell is here with… the opposing view. Good morning, Chris.

CHRIS FARRELL: Good morning, Bob.

MOON: I don’t know. Can you be a contrarian and an optimist at the same time?

FARRELL: I’m going to try. I’m definitely going to try. And as you said there’s a lot of gloom and doom about the economy. But I just think there’s some good news that’s being ignored.

MOON: OK. Fill us in.

FARRELL: Here’s some actual factoids, numbers, trends that I think need to be highlighted. And the most important is this corporate profit recovery cycle has been among the best in the entire post-war period. And I know you’ve covered it. We’re all wondering, it’s like the big guessing game: When are corporations going to start spending their cash hordes? Well, I think we’re starting to see it. Take a look at corporate investment in equipment and software — it’s going at its fastest rate since 1997.

MOON: We also keep hearing these stirrings about, boy, things better improve soon or we’re going to pull back.

FARRELL: Bloomberg did this study and they looked at 200 companies in the Standard and Poor’s 500 and they looked at research and development expenditures — 2007-2009. Now you would think, with everything we’ve gone through, where would you cut? You’d cut R&D, right?

MOON: Absolutely.

FARRELL: That’s a simple thing. That’s down the road. I mean, we’ve got to survive for today. And yet these 200 companies — more than 200 companies — really increased their R&D expenditures during this period of time. I think that’s good news.

MOON: I have to say, though, I’ve got another technical term for you — don’t stick your hand back in the flame.

FARRELL: Yeah, all right. I’m going to do that anyway. I’m going to stick my hand way into that fire. Look, household debt burdens are done. For workers who have jobs, their real incomes — incomes adjusted for inflation — are getting stronger. The other thing — and I don’t want to make too big a point of this — but James Paulsen, he’s chief investment strategist at Wells Capital Management, made the calculation. He said, look, it’s not great. But so far this recovery has produced better job results than was achieved in 1991 or 2001.

MOON: Our economics correspondent Chris Farrell, thanks for joining us.

FARRELL: Thanks a lot, Bob.

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