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Is Corporate America Rusting Away?

From MSN Money. Read the full article--there's light inside the tunnel.

"During the Great Recession, corporate executives, burned by the tech spending boom of the 1990s and frightened by the financial crisis of 2008, unleashed the heavy artillery on their own expense lines.

The result was one of the deepest and most prolific cost-cutting campaigns ever. Far more jobs were cut than the decline in economic output justified. And capital investment fell by more than twice the historical average given the depth of the recession.

In fact, CEOs have under-invested to such an extent that over the past year the manufacturing capacity of the United States has been shrinking at a record pace, hampering the economy's ability to recover and expand."

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"The good news: Things are starting to change. As I discussed in a recent column, CEOs have become much more optimistic over the past few months, with the gap between consumer and CEO confidence reaching record levels. (Read "Why are CEOs so cocky these days?")

As a result, businesses are spending on new equipment at the fastest rate since 1995. According to Merrill Lynch economists, most of these investments are replacement purchases, equipment bought to replace what's broken or outdated. This has helped stop the bleeding: June marked the first month in two years in which the country's manufacturing base didn't shrink on a month-over-month basis.

We've yet to see expansionary investments, purchases that allow businesses to produce more. But assuming the trend continues, the country's production capacity will start growing again.

And history shows that when businesses splurge on capital expenditures, or cap-ex, new jobs tend to follow. That's just the thing to kick-start a drop in the stubborn unemployment rate, spur consumer spending and send stocks skyward."

This is what we're NOT being told--in spite of Obama's desperate attempt to choke the shit out of our economy, business is investing anyway, because they have the cash to do so. My only concern is this: are they investing in HUMAN capital, or are they investing in ROBOT capital instead? Robots don't need wages, salaries, bathroom breaks, smoke breaks, work laws, time off, vacations, maternity leave, sick leave, paid training, or time and money to go to conferences, meetings away from the office, trade shows, or have to worry about such things as PR, expanding markets and market share, the bottom line, stock price, on-time deliveries, showing up (on time) for work, workplace ethics...and let's not forget payroll taxes--robots don't need Social Security, Medicare, or unemployment. There'd be nobody to tax except the few people in charge, and this is another way we can MAINTAIN control of congressional spending...that is, unless a personal property tax is extended to include robots as "computers." Let's not get ahead of ourselves here.

Like Warren Buffet says, "Buy when others are selling, and sell when others are buying."

Right now, nobody's buying, so now's the time to buy. In case you hadn't noticed, there's blood in the streets.
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"So today, as we transition to a new period of growth, households will have to repent for the debt-fueled sins of the previous business cycle. As debt is reduced over the coming years and savings are rebuilt, consumer spending is expected to remain weak. There will be far fewer discussions of the rise of "aspirational consumers" snapping up Coach purses or luxury homes from Toll Brothers.

Instead, the next cycle will be led by businesses, which aren't encumbered by big debts and are poised to re-assume a leadership role. There will be talk of technology upgrades, new machinery and expanded production. Get ready, because the economy of the 2010s is shaping up to look a lot like that of the 1990s. And that means job growth should be more robust and more broadly distributed across the economy; we won't see a concentration in construction or real estate, for instance."

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"...businesses pinched pennies just like consumers did in the recession, trying to eliminate debt while spending only on what they truly needed. But businesses are in a better financial position than a lot of families -- and the proverbial roof is leaking, so they'll be forced to spend to replace obsolete equipment, at the very least. Growth will require even more investment."

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"But you can take a good thing only so far. Executives are starting to realize that pinching pennies won't work anymore. Increased investment is required to grow revenue and maintain profitability.

In the words of Deutsche Bank economist Joseph LaVorgna: "If companies do not reinvest, the capital stock will continue to shrink, and companies will not be able to maintain robust productivity gains." With back orders growing and wait times increasing, companies will lose out to competitors unless money is spent to increase production.

And that spending of money is precisely what's happening."

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"In LaVorgna's words, "The longer companies wait to undertake cap-ex, the more their existing capital infrastructure will deteriorate, and the more these companies will ultimately have to spend to upgrade it." The evidence suggests those in the corner suites aren't waiting any longer."

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"The record decline in America's productive capacity is just another example of how unusually deep and painful the Great Recession was. For many, this plays into fears that we're declining as a nation. After all, it's clear we're rotting away from the inside.

But that's the wrong conclusion. The evidence suggests that businesses, flush with cash and enjoying a resurgence of new orders, have realized what will happen if they don't reinvest. They'll miss out on the recovery, and profits will suffer. And that means our factories, computer systems and assembly lines are due for a modernization that will reinforce our place as the world's most competitive economy."

Once Obama figures out how to politically capitalize on this info, you'll be hearing more about it from the horse's mouth. Right now, we're not supposed to know--it's a sign of failure in his attempt to socialize this country, and we're supposedly too stupid to figure this out on our own. We fought back, are still fighting back, and winning.

Continue filling your pantry, emergency fund, retirement account(s), paying off debt, improving your garden(s), and upgrading your home while the dollars are cheap, and prices still low. We radical homemakers will certainly have earned our place in the victory parade.

Posted by Cute at 8:29 PM

Labels: economy, financial (non-tax), politics, social issues