GDP grew at a blazing 4.2% rate in Q2.
The most exciting line item of the GDP report is real nonresidential fixed investment, which is a fancy way of saying business investment. In Q2 it jumped a whopping 8.4%, which was much stronger than the initial 5.5% estimate.
“The drivers in this category included impressive gains in structures spending (9.4% from the previously reported 5.3% increase) and business equipment expenditures, 10.7% versus the initial estimated of 7.0%,” noted Bloomberg economists Rich Yamarone.
This suggests “that businesses began to put cash to work in Q2 as the US economy rebounded from the early-year growth stumble,” said TD Securities’ Gennadiy Goldberg.
This Is What We’ve Been Waiting For
The financial crisis was highlighted by a credit crunch, which left even the most financially healthy corporations strapped for cash. As a result, corporate America had been accumulating an hoarding trillions of dollars of cash on their balance sheets.
And because growth has been slow and the outlook uncertain, corporations have largely returned excess cash flows to investors through share buybacks and dividends.
But with the economic recovery and bull market in stocks entering its sixth year, economists and strategists have argued that the next leg of growth would have to be driven at least in part by a boom in business spending.
With growth picking finally picking up, equipment getting old, and lending activity getting looser, it appears that now is as good a time as ever for the U.S. spending boom to finally happen. Here’s a round up of some of the recent signals from The Financialist’s Ashley Kindergan:
…So far this year, Federal Reserve Bank of Philadelphia surveys show that an average of 30.5 per cent of businesses plan to increase spending over the next six months, up from 27 per cent over the same period in 2013. The portion that plans to cut spending, meanwhile, has declined from 13 per cent to 6.7 per cent. (It’s worthwhile to note that both figures mark a 180-degree turnaround: Over the same time period in 2009, only an average of 18 per cent cited plans to expand spending, while 25 per cent said they planned to cut.) Further evidence that there’s optimism in the air: The Conference Board’s CEO Conference Survey index sat at 62 out of a possible 100-points this month, and anything above 50 is considered positive. And more than three-quarters of CEOs expect profit growth over the next 12 months.
With aggregate lending standards relaxing over the past two-plus years, banks are seeing higher demand for commercial and industrial loans from companies with at least $US50 million in sales. The net percentage of banks citing higher loan demand in their most recent quarter has been positive since the first quarter of 2013. In July’s quarterly survey, 36 per cent of banks surveyed said demand for C&I loans from large and middle-market companies had grown over the past quarter, compared to just 5.3 per cent that reported flagging demand.
“Of course, more important is the recent widespread strengthening in the business and consumer surveys, which suggests that GDP growth in the third quarter could be a decent 3.0%,” said Capital Economics’ Paul Dales.
Hopefully, all of this good news is real and it will provide the juice the economy and the markets need.