Saturday, March 10, 2018

Data of the Day: Capex easy to do going forward...

While getting a jump this morning on our internal weekly macro update, one of the inputs to our index -- the "corporate financing gap" -- jumped out at me. By comparing non-residential fixed investment (i.e., business capital investment) to corporate cash flows this indicator gauges corporate America's wherewithal to expand. 

As you can see in the first chart below -- thanks largely to stellar Q4 earnings -- the gap has just plunged into negative territory. That is, there is presently no gap:

red shaded areas are recessions... click to enlarge...


This is very good news in terms of economic strength (and its sustainability) going forward, as well as in terms of inflation (as capital investment means gains in productivity).

The marked improvement in this "gap" is consistent with what we're now seeing in the actual capital expenditure numbers. Even government (orange line), after a long hiatus, looks to be joining the act:

red shaded areas are recessions... click to enlarge...






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