Only one thing is going to help workers earn bigger paychecks, help them do their jobs better and get the economy roaring like a lion again.
More business investment.
If the office computer freezes a lot, if the assembly line breaks down too often, if the four-wheeler is past due for major repairs, it’s because companies aren’t investing enough. That’s not good for anyone. Weak investment makes it harder for people to do their jobs, reduces profits and leaves less money left over for pay raises.
The good news is, business investment has sped up this year to the fastest pace since 2011-2012. A measure used by economists to track investment, known as core capital orders, rose 4% in the 12 months ended in September. And just a few months earlier, it hit a five-year high of 6.1%.
Even better the investment is spread out now, unlike five years ago when it was mainly concentrated in the oil industry.
This time around the pickup in investment doesn’t look like it’s going to fizzle, either.
For one thing, businesses held spending down for so long they now need to replace or upgrade equipment.
“Investment had been so weak during the expansions firms decided they couldn’t put it off anymore,” said Richard Moody, chief economist at Regions Financial.
A growing shortage of skilled workers for hire, what’s more, is forcing companies to automate some processes to keep down labor costs or to raise production. No longer can firms hire skilled workers easily and on the cheap.
A push by the Trump White House to slash regulations and business taxes is also adding fresh incentive. Business investment “came roaring back this year in anticipation of pro-growth policies,” noted Sal Guatieri, senior economist at BMO Capital Markets.
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That’s why core capital orders is one of the most important economic numbers for investors and even ordinary Americans to watch. Future prosperity depends largely on whether business invest at higher levels for a sustained period.
In September, core orders are forecast to increase for the third month in a row and the seventh time in nine months. It’s the best stretch in a long time, but it’s still not enough. The U.S. needs a long period of rising investment to kick the economy into a higher gear and help Americans get ahead.
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The shortcomings of mediocre investment are easy to see. Although the economy has expanded for more than eight years, annual growth has been stuck around 2% — well below the 3.3% historical average.
The third quarter looks to be much the same, or perhaps a touch stronger. Economists polled by MarketWatch estimate gross domestic product rose at 2.6% annual pace. The report will be issued Friday.
Third-quarter GDP is also likely to show fairly strong business investment, with the exception of housing. Construction may have fallen in part because of hurricanes that ransacked the South, the region with the strongest housing market by far.