News must travel slowly to corporate headquarters these days. How else can we explain the fact that corporate America isn’t rushing out to invest in response to the big tax cut Congress voted them last year?
According to data released by the Commerce Department orders for non-defense capital goods fell by 1.5 percent in January after dropping 0.4 percent in December. We get the same story even if we pull out volatile orders for aircraft: a drop of 0.2 percent in January after a fall of 0.6 percent in December.
While these declines would not be a big story in normal times (the economic impact is very limited) they are huge in the context of the tax cuts. The main rationale for the cut in corporate tax rates was that it was supposed to lead to a surge in investment.
While investment takes time to put in place, these data are showing us orders. Orders can be made over the Internet or an old-fashioned land line telephone. They don’t take a lot of time.
And keep in mind, while the bill just passed in late December, the basic outlines had been known since early September. Fast moving companies will begin to make plans from the day the bill seemed likely to pass, they aren’t going to wait until Donald Trump puts his pen to it and then start asking what are they should do.
The businesses in PyeongChang didn’t just start making plans for the Olympics the week the games opened, the hotels and restaurants began their expansion plans as soon as they knew Korea had landed the Olympics. We should expect the same story with corporate investment.
If the tax cuts matter for investment, then companies like GE, Microsoft, and Amazon were making plans as soon as it became clear that the Republican majority in Congress was serious about passing a tax bill. The fact that we are seeing zero evidence of an uptick in investment suggests that tax cuts don’t have much impact on investment.
Rather than being about promoting economic growth that would lead to productivity gains and higher wages for ordinary workers, the tax cuts were actually just another way to redistribute more money upward.
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