Business Investment Stalls, Fiscal Cliff Fears Blamed
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Here are three data points that should make one worry about going over the “fiscal cliff,” tax increases and automatic spending cuts set to take effect next January.
First, Reuters reports on new government data showing business investment has stalled:
New orders for capital goods outside of defense and excluding aircraft -- a proxy for business spending plans -- was unchanged last month at $60.3 billion, Commerce Department data showed. Analysts polled by Reuters had expected a modest gain.
This data fits with reports of companies holding back on making new investments.
As you can see in the chart below, new orders for these capital goods rose near the end of the recession, stalled in the latter part of 2011, and have been on a downward trend for much of 2012.
Second, The Wall Street Journal reports that “[b]usiness investment has fallen over the last three months.”
U.S. firms collected $6.9 billion in 820 venture capital deals during the third quarter of the year, a 32 percent drop in dollar value and 9 percent decline in number of deals compared with the same period last year, according to a Dow Jones VentureSource report released last week.
The year-to-date numbers are less drastic. Dow Jones VentureSource tallied $22.8 billion raised by U.S. companies in 2,525 deals thus far into 2012, a 15 percent decline in dollars and 3 percent slide in deals compared with the first nine months of 2011.
Is it fear of going over the cliff? Perhaps. Back to the Reuters story:
The reading highlighted concerns that companies are holding back investments due to fears the U.S. Congress could fail to avert sharp tax hikes and spending cuts in 2013, which threaten to send the country back into recession.
"The slowdown in business fixed investment during the second half of the year is even more pronounced than feared," said Harm Bandholz, an economist at UniCredit in New York.
Also note that the U.S. Chamber’s Small Business Outlook Survey found that nine-out-of-ten small business owners worry about the fiscal cliff and Congress failing to act to fix it.
The Congressional Budget Office and economists predict a recession in 2013 if we go over the cliff. That could be avoided if Congress and the administration come to an agreement after the election. Earlier this year, George Mason University economist Stephen Fuller said that a deal could lead to a burst of business investment and consumer spending. He could see the economy could “turn on its heels quickly” if there was less uncertainty.