FXStreet (Delhi) – Janet Henry, Global Chief Economist at HSBC, suggests that a revival in US capital spending feeds through into higher productivity, supporting real wage growth and boosting confidence.
Key Quotes
“After years of persistent disappointment, 2016 could finally be the year that we see a strong revival in US capital spending. The worst of the persistent cost cutting, cutbacks in shale investment and uncertainty over fiscal gridlock should now be behind us. Investment is at historically low levels as a share of GDP. Indeed, the capital stock is now shrinking and the efficiency of ageing capital is declining. Moreover, company share prices are no longer responding as positively to share buybacks and, after the strong pick up in M&A activity over the past two years, attractive acquisitions are becoming harder to find.”
“Not only may investors encourage management to expand capital spending but, with the economy at full employment and nascent wage pressures emerging, companies start to find it harder to find affordable skilled labour so embark on investment projects in an attempt to lift productivity. The recent improvement in final sales, particularly consumer spending, adds to confidence about the outlook for future demand and with dollar strength abating, the profit share in GDP hits a new high. Credit conditions also remain favourable against a backdrop of only very gradual Fed tightening.”
“The investment revival could quickly feed through into stronger productivity, slower employment growth and more robust nominal wage growth, providing continued support to real wage growth as the boost to disposable incomes from low oil prices fades.”
(Market News Provided by FXstreet)