• JPMorgan’s Head Economist Jim Glassman delves into the perceived slump in capex this year.
• He finds that decline is not due to trade war dynamic, as most analysts thought.
• Starting with energy, he notes that business investment in mining structure has fallen, but this is mostly because oil prices have dropped below $60.
• Additionally, there has been a major drop in purchases of transportation equipment. This is almost entirely due to the grounding of 737 Max 8s. These are being produced at fast rates but are not showing up in official capex reports yet. Once delivered and cleared by the FAA, the decline in capex will disappear.
Why does this matter? Recent low capex is being cited as a structural problem for the US economy and many are downgrading US growth and interest rate expectations accordingly. However, if it is a temporary decline, then many investors could be wrong-footed. Notably, interest rates may end up higher than many expect.
(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)
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