ROSENBERG: This Chart Represents The Strongest Case For A CapEx Comeback

Many economists forecasting on accelerating U.S. GDP growth are banking on hope that business investment will pick up in 2014.

They have argued that ageing equipment and a general pent-up demand for these capital goods represent a bullish economic force to come.

But this has been an argument for years. Some strategists believe it’s not coming. Others recommend “keeping the faith.

Gluskin Sheff’s David Rosenberg is among the economists who still believe the capital expenditure boom is coming. He offered a chart and some commentary in his latest Breakfast With Dave note:


The answer lies in CAPU … in other words, capacity utilization rates. While hardly yet at a peak, at 77% for U.S. manufacturing they are at levels that in the past touched off a moderate capex growth cycle. As the chart below shows, there is a slight lag but a decent 65% historical correlation. History also shows that once 77% is breached in terms of CAPU rates in an up-cycle, capital spending in real terms in the ensuing years averages out to be 0% growth — enough to add an increment 60 basis points to headline GDP trends.

Here’s Rosenberg’s chart:

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