Notwithstanding the general mood of optimism surrounding US recovery prospects, there is one recent development that needs to be watched closely. If the US economy is to reach a point whereby it becomes self-sustaining, then a critical ingredient will be decent growth in business investment. Since late summer, the pace of growth in private capital spending has stalled, as proxied by non-defence ex-aircraft capital goods orders. That said, the actual value of capital goods orders is currently consistent with that which prevailed in the first half of 2008 before the GFC. Part of the explanation for the slower growth in capex lies in the maturation of the inventory cycle. In addition, some investment spending was clearly brought forward ahead of January's halving of an investment tax credit. More encouragingly, a survey of US executives in the manufacturing and services sectors (conducted recently by KPMG) generated record highs in terms of optimism regarding revenues, profits and new business. US service sector companies are overwhelmingly bullish – 96% of US executives in this sector expect hiring to remain the same or increase this year. Attitudes to capital spending are also very buoyant in both sectors. Should the outcome of this survey actually be replicated out there in the real economy, then the prospects for the US economy look (at the very least) quite sound, with the potential to surprise on the upside.
Also in today's Daily Forex Brief:
- Yet more euro short-covering
- The pressure on UK households
- A bumpy time in China