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Business investment has been falling for three quarters. Should we worry?

Sabri Ben-Achour Jan 30, 2020
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Spencer Platt/Getty Images

Business investment has been falling for three quarters. Should we worry?

Sabri Ben-Achour Jan 30, 2020
Spencer Platt/Getty Images
HTML EMBED:
COPY

The U.S. economy grew 2.3% in 2019 — that’s below the 3% the president promised and a slowdown from 2018. The level of business investment — the amount of money businesses are investing in equipment, computers and office supplies — has fallen for three straight quarters.

For nine months now, American businesses have been spending less and less money on things they might need in the future.

“Everything you have in your office, everything you have in your production factory, that is business investment,” said Torsten Slok, chief economist at Deutsche Bank.

“As the trade war came along, we began to see business spending slow down,” Slok said. “Unfortunately, it’s been on a steady slowdown for the last 18 months or so.”

Business investment accounts for about 13% of gross domestic product — more than $2.8 trillion. So if businesses are backing away slowly from investing in the future, what does that mean?

“The last time we saw business investment decline for three quarters or more was heading into the 2008-2009 recession,” said Nicholas Bloom, a professor of economics at Stanford.

We are not, Bloom said, about to have another big recession. The decline in business investment now is tiny compared to what it was back then. Bloom said it’s worrying, but not surprising.

For now, shrinking business investment means our economy is growing more slowly, which we’ve known. GDP growth in the fourth quarter of 2019 was 2.1%; it was 2.9% overall back in 2018.

“Over the long run, if we as a society do not invest in upgrading and modernizing and expanding our capital stock with new and better machinery structures and equipment, we’ll be less productive,” said Richard DeKaser, chief corporate economist with Wells Fargo and Co.

Economists say they don’t expect a rebound in business investment around the corner.

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