Businesses, like US consumers, have held on to their cash and avoided debt. It was a good short-term game plan, but it won't work forever (and won't create much-needed jobs).
It is said that generals always prepare for the last war. Old tactics and strategies get reused in the hope of reliving glories past. But, of course, the next war is different. And those blind to the changes are doomed to defeat.
Job losses and the Great Recession
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 underinvested 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. Msn.Video.createWidget('PlayerAd1Container', 'PlayerAd', 300, 213, {"configCsid": "MSNmoney", "configName": "player-money-articles-16x9", "player.vcq": "videoByUuids.aspx?uuids=a5194134-46bf-496c-b193-253685455064,a5a81dc6-1a31-40e7-9d06-6e9a91ead6e3,d62c8ebf-ca9e-4c46-a316-46ceb120fd38,a6a09612-e835-4822-ac37-a70c3a0f6fc7,bced8a90-ef83-4e55-99a2-ddb776e91fa3,2ef6fb00-12d2-429e-47b6-ae117c2050b0,b87ce2d2-ea8e-43d5-a619-9698238d11d7,6c514574-90ce-492d-a601-756d5920b662,6aa3aabd-bb3d-474c-8d5c-42cd4b00e589,00500621-208b-4360-bc81-e3a47bef642b,f18021fd-243e-4e20-af85-a8de90fd4518,52399425-7a90-4c34-8c9d-3cb1814b12f0", "player.fr": "iv2_en-us_money_article_16x9-Investing-Extra"}, 'PlayerAd1');Msn.Video.createWidget('Gallery4Container', 'Gallery', 304, 150, {"configCsid": "MSNmoney", "configName": "gallery-money-articles", "gallery.linkbackLocation": "bottom_left", "gallery.numColsGrid": "3", "gallery.categoryRequests": "videoByUuids.aspx?uuids=a5194134-46bf-496c-b193-253685455064,a5a81dc6-1a31-40e7-9d06-6e9a91ead6e3,d62c8ebf-ca9e-4c46-a316-46ceb120fd38,a6a09612-e835-4822-ac37-a70c3a0f6fc7,bced8a90-ef83-4e55-99a2-ddb776e91fa3,2ef6fb00-12d2-429e-47b6-ae117c2050b0,b87ce2d2-ea8e-43d5-a619-9698238d11d7,6c514574-90ce-492d-a601-756d5920b662,6aa3aabd-bb3d-474c-8d5c-42cd4b00e589,00500621-208b-4360-bc81-e3a47bef642b,f18021fd-243e-4e20-af85-a8de90fd4518,52399425-7a90-4c34-8c9d-3cb1814b12f0;videoByTag.aspx%3Ftag%3Dmoney_dispatch%26ns%3DMSNmoney_Gallery%26mk%3Dus%26vs%3D1;videoByTag.aspx%3Ftag%3Dbest%2520of%2520money%26ns%3DMSNmoney_Gallery%26mk%3Dus%26vs%3D1"}, 'Gallery4');In other words, the most powerful country in the world is rusting away as its factories, its machinery -- indeed its very backbone -- decay and atrophy. And these decisions, made in the name of coping with the recession, make recovery more difficult and help keep unemployment high.
Find a broker and trade online nowWidespread problem I'm not talking about steel mills and factories abandoned years ago. The decline is happening across a wide swath of today's economy. The worst damage is being suffered by the makers of cars, clothes, furniture, and wood and paper products. As Neil Young sings, "Rust Never Sleeps."
Now that the economy is coming back to life, many major industrial companies are finding it increasingly difficult to secure parts from suppliers. Caterpillar (CAT, news, msgs) and Boeing (BA, news, msgs) recently complained that suppliers haven't been able to meet the groundswell of new orders. The problem is especially acute in the technology space. Altera (ALTR, news, msgs), a maker of semiconductors, said its lead time on orders had increased from 16 weeks to 26 weeks.
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 capex, 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.
Continued: Sins of the past More from MSN Money
What if the jobs don't come back?Safe plays for shellshocked investorsStocks on the road to nowhere Why are CEOs so cocky these days?Why are the rich still whining?1 | 2 | 3 | next >
Rate this Article Click on one of the stars below to rate this article from 1 (lowest) to 5 (highest). LowThank you for rating.UGR('ratCntrl')High var avgRating=0;avgRating=6.947369; if(avgRating!=0){avgRating=avgRating/2;avgRating=Math.round(avgRating*100)/100;var sDisplayText="Average rating: " + avgRating + " from ";var usersCount=38;sDisplayText = sDisplayText + usersCount;if (usersCount==1)sDisplayText=sDisplayText + " user";else sDisplayText=sDisplayText + " users";avgRatingElem=document.getElementById("averageRating");avgRatingElem.innerText=sDisplayText;} View all top-rated articlesE-mail us your comments on this article Discuss in a message board MSN Money InsightNew Investor CenterMarket DispatchesJubak's JournalTop Stocks blogCompany FocusContrarian ChroniclesSmart Spending blogFast AnswersDecision CentersStart InvestingMutual FundsFind Hot StocksSimple StrategiesPower ToolsInvesting for IncomeReal Estate InvestingStocks to WatchCareFusionMacy'sNT Global AdvisorsReady MixHSW InternationalCraft Brewers AllianceGrupo TMMVocalTec CommunicationsRecent Articles by Anthony MirhaydariWhat if the jobs don't come back? 08/04/2010Safe plays for shellshocked investors 07/28/2010Why are CEOs so cocky these days? 07/21/2010More . . .Fund data provided by Morningstar, Inc. © 2009. All rights reserved.StockScouter data provided by Gradient Analytics, Inc.Quotes supplied by Interactive Data.MSN Money's editorial goal is to provide a forum for personal finance and investment ideas. Our articles, columns, message board posts and other features should not be construed as investment advice, nor does their appearance imply an endorsement by Microsoft of any specific security or trading strategy. An investor's best course of action must be based on individual circumstances.Msn.Video.createWidget('Gallery8Container', 'Gallery', 500, 230, {"configCsid": "MSNmoney", "configName": "gallery-money-article-site-wide"}, 'Gallery8');msft.msn._ic.cid='h4pbccpyeb2f32pyyb9s9bd84fqeva60';msft.msn._ic.pst=false;msft.msn._ic.pgn=1; Join the discussion!Add a commentShow commentsSort by:Newest firstOldest first_uc2f12('iucGo');1 - 2 of 2PreviousNextbgDog #1Wednesday, August 11, 2010 10:38:29 PMGood article. Consumer demand is the final piece of the puzzle and until consumer confidence rebounds capex is irrelevent. Middle class needs to part of the recovery and the future shows very little increase in disposable income for most middle class consumers. Employees are consumers as well as workers and need to have enough money after paying living expenses to buy extra things. Until this disparity changes all the graphs mean nothing.
ReplyReport AbuseAndy from Brooklyn #2Wednesday, August 11, 2010 11:36:06 PMIn the next 5 years incomes in America are going to be scaled down due to the scarcity of jobs.......It's a supply and and demand issue coupled with the loss of union power over corporations ......we will all know it's game time when deflation hits and we can't even afford cheap crap from china.....only GOD knows where we are heading.........but history shows we are repeating a bad trend orchestrated and calculated with precision by both political party's that we continue too leave in chargeReplyReport Abuse1 - 2 of 2PreviousNext_ucf13('0'); _iuc2Om1('MSNPortalInlineComments','Initial_Load_Comment_View','http://articles.moneycentral.msn.com/Investing/Extra/mirhaydari-is-corporate-america-rusting-away.aspx?','en-us');Are you sure you want to delete this comment?Report AbusePlease help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease notify us using the Report abuse form below. We will investigate your report and take appropriate action against offenders. We report all illegal activity to authorities.CategoriesSpam or advertisingChild pornography or exploitationProfanity, vulgarity or obscenityCopyright infringementHarassment or threatOtherAdditional comments(optional)100 character limit To add a comment, pleasesign in/*MSN PrivacyLegalAdvertiseRSSHelpFeedbackSite mapAbout our ads© 2010 Microsoft/*Widespread problem I'm not talking about steel mills and factories abandoned years ago. The decline is happening across a wide swath of today's economy. The worst damage is being suffered by the makers of cars, clothes, furniture, and wood and paper products. As Neil Young sings, "Rust Never Sleeps."
Now that the economy is coming back to life, many major industrial companies are finding it increasingly difficult to secure parts from suppliers. Caterpillar (CAT, news, msgs) and Boeing (BA, news, msgs) recently complained that suppliers haven't been able to meet the groundswell of new orders. The problem is especially acute in the technology space. Altera (ALTR, news, msgs), a maker of semiconductors, said its lead time on orders had increased from 16 weeks to 26 weeks.
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 capex, 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.
Continued: Sins of the past More from MSN Money
1 | 2 | 3 | next >
Good article. Consumer demand is the final piece of the puzzle and until consumer confidence rebounds capex is irrelevent. Middle class needs to part of the recovery and the future shows very little increase in disposable income for most middle class consumers. Employees are consumers as well as workers and need to have enough money after paying living expenses to buy extra things. Until this disparity changes all the graphs mean nothing.
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