It has been a common refrain this year: businesses are deferring capital spending due to uncertainty (trade wars) and a worsening economic outlook (manufacturing). Yield curve inversion implies that markets do not believe that current levels of investment suffice to deliver robust economic growth further down the line.
In truth, investment remains very strong. The third estimate of Q1 GDP delivered an important reminder: the investment figures are notoriously prone to revisions, particularly for intellectual property products.
Real investment in intellectual property products (IPP) has now recorded double digit q/q annualised growth in four out of the last five quarters. The y/y was revised up from 8.48% to 9.68%. As a share of real GDP, IPP investment hit a fresh record of 5.08%.
The Conference Board shows some softening in the labour market, and claims have drifted marginally higher. The June payroll report is important, but the m/m increase in payrolls could be slowing because the US is approaching full employment. The surge in IPP investment is very positive for equities: it suggests that productivity is now the focus of companies, not hiring: full employment need not equate to accelerating wage gains. Core inflation may move back up towards 2.0%, but the focus on technology-related investment and innovation indicates it will not move that much higher.
