Outlook for Business Investment Improves, but Softness May Persist
The outlook for business investment appears to be improving, but business spending is still likely to be weak through the end of this year.</br></br>The G7 Group Inc., a closely held political and economic consulting firm, said the latest preliminary reading of its quarterly index of business investment improved to a minus 25 in the fourth quarter from minus 37 in the third quarter.</br></br>An index measure of minus 33 or lower suggests that business fixed investment is contracting in the current quarter. An index reading between zero and minus 33 indicates growth, but at slower rates than the historical average of 5%. Results greater than zero indicate above-average business investment.</br></br>More specifically, the minus 25 reading is consistent with a 1.1% increase in business investment in the fourth quarter on a seasonally adjusted, annualized basis, G7 Group said.</br></br>If business investment does grow at a 1.1% annual rate this quarter, it would be a step up from the third quarter, when capital spending increased at a 0.6% annual rate, the first gain in two years. But it is also well below the robust levels of the late 1990s, and weak enough to keep pressure on consumers to continue spending to keep the economy afloat -- a tall order given that many economists believe the approaching holiday season will be a disappointment.