Saturday, October 27, 2012

Companies Becoming More Cautious As Fiscal Cliff Nears

Much is being made about the impact on the economy in light of the impending "fiscal cliff" in the U.S. Most strategists agree the impact on the economy will be significantly contractionary if the U.S. goes over this so-called cliff. In reality though, the negative impact of the cliff is already being felt and it appears businesses are positioning themselves for a potential worst case outcome.

Over the course of the last week or so, many writers have referenced the chart of manufacturers new orders of capital goods. The below chart contains "new orders ex defense" compared against the S&P 500 Index. As can be seen, this decline in capex spending has been a precursor to a potential recession. The current spending level is certainly flashing a warning. The chart in the article at this link shows capex spending compared to economic growth or GDP. In short, Washington is playing with fire as it relates to the current economy and if there recent actions are an indication, the administration and Congress do not understand how businesses plan and operate. Businesses hate uncertainty.

From The Blog of HORAN Capital Advisors


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