The Economy Is Really Cranking Right Now

Corvette engineREUTERS/Gary CameronThe engine compartment of a 1957 Chevrolet Corvette

“The economy is really cranking now,” Bank of Tokyo-Mitsubishi’s Chris Rupkey wrote clients this morning. “Firing on all cylinders, consumer spending, and now business capital spending.”

As Americans gear up for the holidays, durable goods orders absolutely obliterated economist expectations.

“Core capex” — orders of nondefense capital goods excluding aircraft — spiked 4.5%, well above the consensus estimate of 0.7%. This is a great sign for business investment.

Here’s Rupkey:

Business spending on equipment, capex, is a small part of the economy 5 or 6%, but it is this equipment that enables companies to meet consumer demand for their products and services so it is absolutely a critical element for growth. It is the fuel the economy needs to keep moving higher. Our proxy for business capex in the durable goods report is nondefense capital goods orders ex-aircraft. Today these orders jumped 4.5% in November and are now less than one-tenth per cent away from the record high made in June. The Fed Chairman told the press conference last week that investment spending was weaker than they would like. Well it isn’t weak anymore if it is just shy of all-time record highs. This economy is cruising in 5th gear; in the 5th year of expansion from the end of the recession, could it be anything but?

While some of this core capex may be motivated by the coming expiration of certain tax credits, it nevertheless is a sign of growth.

This comes after yesterday’s strong consumer spending report, which spurred Rupkey to revise his shop’s fourth quarter GDP figure to a bullish 3.2%.

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at