What Businesses Are Telling Us
For the past three
years, consumers have been consistently purchasing all sorts of
goods, keeping the economy from falling off the cliff while not giving the stock
market much to cheer about. Businesses, on the other hand, have been cost-cutting in an effort to restore profitability,
by putting off spending and trimming their labor force. But because this steady
decline in capital expenditures (business spending) has been followed by
declines in the stock market, it is therefore fair to assume that once
businesses start spending again, the markets will start moving up as well.
According to a recent survey, this has already started happening…
Yesterday, the Manufacturers Alliance
released
its quarterly MAPI business outlook index. The survey reflects the views on
current and future business conditions of 58 senior financial executives
representing a broad range of manufacturing industries. A composite index above
50 indicates that overall manufacturing activity is expected to increase over
the next three months.
After jumping to a five-year high of 67 at the end
of last year, the current posting registered a solid 63 reading for the first
quarter, showing that US manufacturers retained their optimism about the
economic outlook. More importantly however, is that the index of orders soared
to a two-year high of 67, while capital spending shot up to 62–a second
straight gain.
And the interesting thing about the two
consecutive gains in the capital spending number, is that they coincide with the
rebound in the stock market from last Fall’s lows in the stock market. So this
current release could very well be an indication that capital investment is
likely to continue improving.