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Make America Great Again? – Watch this Measure

Capital expenditure

Amount spent to acquire or upgrade productive assets (such as buildings, machinery and equipment, vehicles) to increase the capacity or efficiency of a firm for more than one accounting period. Also called capital spending. Definition provided by BusinessDictionary.com.

Through the course of 2016 we have intermittently addressed the topic of Capital Investment here in the Weekly View.  At times we have merely alluded to it and at other times it was addressed directly.  Throughout there was always a common thread weaved of the importance of Capital Investment levels and how it plays a key role, as a building block, for wealth building generally, and increasing productivity in particular for an economy.

We have typically shared this measure as Productivity measures were released reflecting disappointing results to underline the two are connected.  The central theme of the connection was an on-going lack of Capital Investment growth within the monthly U.S. Durable Goods report.  This lack of growth, when occurring consistently, can place downstream pressure on productivity growth as there is a lack of ever increasing levels of productive assets (as offered in our header quote) employed within the economy.  Furthermore, with lower Capital Investment, it also retards current economic growth as there are fewer orders to build and produce the productive assets.

With this, Capital Investment growth offers two obvious positives to a nation’s economy.  First, the immediate economic activity that is generated with increasing orders of productive assets, and second, the follow-on increased productivity when the assets are deployed into the economy at large.  With this, as productivity increases companies have the ability to raise wages as their workers are producing more in a given amount of time.

All told, this creates a positive upward spiral for an economy/nation to increase its wealth.  As workers have more productive assets available to them, they are able to produce more in a given amount of time which affords wage increases in light of the increased production per employee.  The consumer sees lower priced products than otherwise would be as companies can price their products at a lower level being employees are producing more efficiently.  At the same time, with the increased efficiency companies become more profitable.  A true collective positive.


The above graph is depicting the trend of Capital Investment for the last decade in the U.S. on a quarterly basis as compared to the previous year.  With this, the chart is less “noisy” than a monthly chart would reflect so you can easily identify the major trend.  Looked at in its wholeness, a stand-out theme is how relatively little time this measure has stayed above the zero line in the last decade.  More recent, stagnation has developed since 2012 whereby large segments of that time frame have been reflecting negative percentage changes.  More specifically, since the latter part of 2014 we have had only two months that reflected positive percentage changes and those two months depicted growth of less than one percent.

Make America Great Again

The incoming Administration has the above campaign slogan as their central objective.  Like all campaign slogans they can infer different meanings to different people.  I feel as part of this slogan many, if not most would recognize this to mean increased economic strength with a host of attributes such as more employment opportunities with higher wages distributed throughout the economic classes.

Capital Investment is not the be all and end all measure, but it is an important foundation piece to the economic structure.  With this, it can be one measure to monitor to see if expected policy initiatives into the new year transform the general malaise for Capital Investment of the last decade into robust strength, leaving in its wake stronger economic growth, follow-on productivity increases, and higher wages.

I wish you well…

Ken Reinhart

Director, Market Research & Portfolio Analysis

Portfolio Manager, CAMS Spectrum Portfolio

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