Capex And Taxes – What The Corporate Sector Is Saying About The Economy

Private US businesses are not building new facilities, or renovating old ones, at a rate that suggests the economy is doing well. Let alone booming. For more than two years now, the aggregate level of Private Non-residential Construction Spending has been flat.

According to the Census Bureau in figures released today, construction capex in July 2018 (seasonally adjusted) was less than 2% above what took place in July 2016. Compared to November 2016, there was less spending in the latest month than during the height of Reflation #3.

In between, it does seem as if the US economy was “rescued” to a substantial degree by Keynesian economics. The destruction of so much capital material by the storms Harvey and Irma appears to have triggered a temporary reprieve. In terms of construction spending, things were headed the wrong way in the middle of last year until Mother Nature took over.

Now without the “benefit” of mindless devastation, the sector is turned lower again. This despite what is supposedly a robust economy not just here but in many other places around the world (globally synchronized growth). If that is so, why aren’t businesses behaving like it and preparing for these better days, meaning higher volumes, that are supposedly here already?

In terms of public construction, there is also a little bit of both; meaning clear effects of tropical storms that only leave us with questions about everything else. Public construction spending jumped in October and November 2017, as you would expect. The splurge continued on all the way until May 2018.

Public construction has been slightly lower since, though in the short run there isn’t much confidence in the data (revisions in this series tend to be severe at times; construction spending for May 2018 was revised sharply lower, so it may be over the coming months the data could be significantly revised in either direction). Is this a temporary pause as local governments digest the last few months? Or are recently raised tax issues putting the brakes on current plans?