CEOs are Holding Back on Funding Business Investments, Some Say

The consistently sluggish expansion of the nation’s GDP, which slowed in the second quarter to an annual rate of only 1.2%, can be largely blamed on consistently disappointing levels of business spending on new factories, equipment and software, which has subtracted from growth for three straight quarters. While consumer spending rose at 4.2% in the second quarter, business investment actually fell at a 2.2% pace.

Many CEOs will blame their unwillingness to make new business investment on an Obama administration they say is hostile to corporate America, as demonstrated by its attitude on taxes and the ever-growing spate of business regulations.

However, uncertainty over the most contentious presidential election in decades also unnerves CEOs who want predictability above all else as they make investment decisions. But business leaders’ trepidations go far beyond the election result, some observers insist.

Moreover, tepid business investment is, in large part, being blamed for the longest slide in American worker productivity since the late 1970s, a development that is plaguing prospects for long-term growth. Investment in new plants and machine tools, new computer systems and other technologies could help boost worker efficiency, but hasn’t been available.

Meanwhile, another important input to the production process—labor—is becoming increasingly scarce and more expensive, as Bloomberg noted.

Other factors are at work, too, including slack global demand, as even the anemic U.S. economy has become the most consistently reliable engine of economic growth anywhere in the world. Slowing in China, stasis in Europe, and troubles in Brazil all cut into foreign demand for American goods and services.

“The logic is quite simple: the corporate sector is unlikely to increase investment in the absence of strong (global) final demand,” Deutsche Bank analyst Dominic Konstam wrote recently.
Whatever its exact elements, this toxic brew of factors has been a recipe for disaster for U.S. business investment. It’ll be up to CEOs to decide whether to change it.