April 30, 2018
The Washington Post noted the 6.0 percent rise in business investment in the first quarter and said that it seems to contradict the drop of 0.1 percent in capital goods orders (excluding aircraft) in March. There actually is no contradiction.
Capital goods orders are forward-looking, indicating businesses’ intentions for how much they want to invest over the next year or two, sometimes longer. Their investment in the first quarter is mostly the outcome of investment made in prior quarters.
If we are looking for the impact of the tax cut on investment, we should be focused on orders. The growth figures touted by the Republicans imply growth of roughly 25 percentage points over baseline growth. The 6.0 percent figure is consistent with the recent trend; if the tax cut leads to anything like the growth promised by the Republicans, we should be seeing growth well into the double digits.
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