Something really important is starting to happen in the US economy

August 28, 2014
August 28, 2014

It’s finally happening. American companies are spending again.

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During the second quarter, growth in US nonresidential fixed investment rose 8.4%, up from 1.6% during the first three months of the year. That 8.4% gain was much better than the 5.5% increase initially reported for the second quarter. (Today’s data is the US Bureau of Economic Analysis’s second estimate of the data.) The business investment gains were broad-based. Investment in commercial buildings was up 9.4%. And equipment investment rose 10.7%.

An upturn in corporate investment shouldn’t come as a surprise. US equity markets are buoyant, and business and consumer confidence are at, or near, post-crisis highs.  This is good news, as business investment is a big driver of the demand that fuels the economy; it’s also a crucial part of keeping an economy productive over the long term.

On the other hand, an upturn in capital expenditures is more typical in the waning stages of an economic expansion. The current US expansion, which began in June 2009, is already in its 62nd month—the average duration of an economic expansion since World War II has been 58 months.

So will this expansion come to a sudden, jarring end? Probably not, considering the Federal Reserve’s ongoing low interest rates. There are signs of serious healing in the labor markets, but Fed chair Janet Yellen has made clear that she wants to see a lot more.

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