US businesses stop investing,households struggle

by Michael Roberts

As a follow-up to yesterday’s post on Anglo-Saxon economic growth (UK and US GDP and Anglo-Saxon angst, 25 October 2012), the first estimate of US real GDP growth for Q3 2012 has been released today.  The headline annualised real GDP growth figure was 2%, up from 1.3% in Q2 and a bit higher than expected.  If you compare US real GDP growth over the last 12 months, it is up 2.3% to Q3, which is a slight acceleration from Q2, when year-on-year growth was 1.3%, but is the same as Q1 growth of 2%.  US real GDP growth will have to accelerate to 2.6% yoy in Q4 to achieve a 2012 growth rate of 2%.  So it’s not great.

And there are a few worrying signs in the detail.  Gross private sector investment has almost slowed to a stop, up just 0.5% annualised in Q3.  And that’s only because of a huge recovery in home purchases in Q3, up 14.4% annualised.  Business investment fell 1.3% in the quarter as companies cut back on new plant and stopped buying more equipment.  Business investment has slowed from 12.5% yoy growth in Q1 to just 4.7% yoy now.  Exports too look weak.  They fell 1.6% in Q3 and are no longer rising faster than imports.  A very large increase in defence spending (13%) kept government spending growing.  If you strip out exports, sales to US citizens are growing at exactly 2% a year in real terms.

The trouble is that it is not likely to get any better.  Yesterday, data for capital goods orders came out.  These figures tell you whether the productive sector of the capitalist economy is going to invest more.  Well, the data now look like this (for orders of capital goods that do not include aircraft or military weapons).

Capital good orders are now at levels that suggest the US capitalist sector could be heading back into slump within a year or so.

Can American households save the day by deciding to buy more food, clothing, Apple I pads and gasoline?  Well, in real terms consumer spending growth is trundling along at 2% a year, hardly inspiring.  And that is not surprising given that unemployment is only coming down very slightly at best and median average real household income is still some 8% below its peak before the crisis.

Since the recovery from the Great Recession began in June 2009, the US economy has grown at the slowest rate of any recovery in the post-World War II period.  I explained why in my previous post.