A front page Wall Street Journal piece warns that business investment in the U.S. is collapsing.
Corporate executives say they are slowing or delaying big projects to protect profits amid easing demand and rising uncertainty. Uncertainty around the U.S. elections and federal budget policies also appear among the factors driving the investment pullback since midyear. It is unclear whether Washington will avert the so-called fiscal cliff, tax increases and spending cuts scheduled to begin Jan. 2.
Hopefully, Washington will reach a solution to the (entirely self-inflicted and unnecessary) fiscal cliff problem. Hopefully, that will show that fear and uncertainty over the consequences were the real reasons for the collapse. Hopefully, in other words, the roots of the slowing demand aren’t deeper than the foolish political brinkmanship on display in Washington.
But, laying aside our hopes for a moment, if, as has happened first in Japan, then the UK, and next the whole eurozone, we were going to have a double dip recession, a collapse in business investment would be one way it would start.