Elliot Clarke, Research Analyst at Westpac, suggests that US business investment is at risk from trade and broader doubts over outlook.
Key Quotes
“Expectations for business investment through late-2017 and 2018 have been abnormally strong on the back of fiscal reform. Currently they sit at or above the level seen in the post-GFC recovery and, before that, the heady days of pre-crisis expansion.”
“These expectations have subsequently been franked by the activity data, with the annualised quarterly growth pace of investment over the 12 months to March 2018 (6.8%) less than a percentage point below the average of 2010-2012 (7.6%).”
“An acceleration in business investment growth from the current pace is a core support of the near-3% GDP growth that we, the FOMC and the market are forecasting for 2018.”
“Within the most recent data however, evidence is instead pointing to downside risks beginning to build.”
“From available partial data, two features stick out: first, while non-residential investment growth is strengthening, it remains at a modest pace versus history; second, for equipment investment, data to May suggests that growth has plateaued from Q1 to Q2 instead of accelerating further. This suggests that businesses remain circumspect on the outlook, particularly their likely return on new investment.”
“Though GDP growth will be very strong in Q2, downside risks for investment are building, warranting careful assessment from Q3.”
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