Dear Reader,
Businesses are betting on more growth.
According to Census Bureau data, orders for nondefense capital goods excluding aircraft — a.k.a. core CAPEX or business investment — climbed 1.0% to a record $80.8 billion in March.
This was notably stronger than the 0.5% economists expected.
These are orders for expensive equipment like industrial machinery and electronic computers, which businesses use to produce the goods and services they sell to their customers.
To reiterate, these are orders, which means this is stuff businesses don't have now but expect to use down the road.
If business activity were slowing or expected to contract, you might expect companies to be more conservative about deploying capital. The last thing anyone wants to do is pay for equipment and labor that's idling and not generating revenue.
But activity just isn't showing signs of turning south anytime soon.
This spending represents a massive tailwind to the economy, which has been growing relentlessly despite an array of challenges.
The economic strength was also confirmed earlier this month by better-than-expected industrial production data.
Business activity could be much stronger if not for persistent supply chain issues that, unfortunately, don't seem to be easing up at any sort of efficient paceIt's important to note that while strong demand is a good thing, it's been coming amid constrained supply.
A dynamic that has been fueling inflation.In its effort to contain inflation, the Federal Reserve is engineering monetary policy with the aim of cooling that demand to get it more in line with supply.
The Fed believes it can execute this without tilting the economy into recession.
Keep in mind that the supply-demand mismatch can also get resolved if supply chain constraints loosen significantly.
Regardless, it's a complicated, high-stakes exercise, and we'll only find out if we avoid recession after the fact.
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