An Important Measure Of Business Investment Is Signaling Bad News For Jobs

Bloomberg’s Scarlet Fu presented her ‘Single Best Chart‘ for jobs day, and it outlines an unsettling trend that could throw the continued U.S. economic recovery off track.

While many people think machines replace human workers, evidence shows that this isn’t the case.

Since the 1990s, business investment has traditionally led payroll growth by about 3 to 4 months. Generally, these indicators trend in the same direction.

However, recently core capital expenditure orders have fallen while the labour market has continued to firm, as shown in this chart from Wells Fargo:

Investment v Employment

Photo: Wells Fargo

Fu believes “This weakness in business investment and exports now threatens – or could threaten – the jobs recovery.”

Gina Martin Adams of Wells Fargo predicts a continued decline in business investment and which sectors this would affect most:  

Business investment fell 1.3% in the third quarter and our economists forecast declines in each of the next two quarters…the longer uncertainty prevails, the worse the economic outcomes become. Slowing order growth is likely to lead to lower industrial production in early 2013, most negatively impacting our earnings outlook for capital spending sensitive sectors in the index – industrials and technology.

Watch Fu’s ‘Single Best Chart’ presentation from Bloomberg TV:

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