This post is going to sound pretty wonky, but it deals with data that go a long way toward figuring …Continue reading →
This post is going to sound pretty wonky, but it deals with data that go a long way toward figuring out how well the U.S. economy is doing during the first months of a Trump 2.0 administration marked by an effort to revolutionize U.S. trade policy.
A major argument against the president’s tariff-centric approach – and especially its on-again-off-again nature to date – has been its effect on business investment in the United States. Supposedly, the big swings in Mr. Trump’s various trade-related decisions have businesses paralyzed with uncertainty. And at least logically, that claim makes sense.
After all, if U.S.-based companies involved in international commerce in any way can’t know where the tariff dust will settle, how can they plow ahead with plans to build or upgrade factories that are not only often very expensive, but that usually take many years to complete?
And yet, throughout the year, despite a new monthly internal inconsistency, the relevant official statistics show that such investment has held up reasonably well. In fact, a trend that I spotted a month ago still holds: U.S. business spending under the second Trump presidency so far compares favorably with its performance during the same period last year – when no talk of tariff hikes of any kind was even in the wind.
According to Census Bureau figures that came out this morning, “core capex” – a category that leaves out defense-related and aircraft-related capital spending because of their supposed volatility – has risen fractionally between February (Mr. Trump’s first full month in office) and the advance June numbers released today. And that’s despite a 0.68 percent monthly drop in June. Between last February and June, such business investment dipped by 0.57 percent.
But did business spending even fall in June? That’s not what was reported earlier this month by the Federal Reserve. Its monthly industrial production report tracks a category called “Business equipment” spending. It’s not the same as core capex, but it’s closely related.
Indeed, as noted by this important post by Axios.com’s Neil Irwin, “Industrial production of business equipment is an early indicator of capital spending, which ultimately fuels higher productivity and higher incomes….These are the goods companies buy in order to increase their productive capacity — a bet on future growth”.
Moreover, this category includes that volatile non-defense aircraft-related investment – which according to the new Census report, fell so much faster than core capital spending that it led total capital spending’s June results down by 22.2 percent.
The Fed’s June business equipment spending numbers, however, show nothing of the kind. They estimate that such investment rose modestly. And although the 0.10 percent increase is pretty unexciting, it’s adjusted for inflation – unlike Census’ capex data.
As for the February-June period, the Fed found that business equipment spending has risen by 2.76 percent in real terms this year. During the comparable, pre-tariff Biden span, it fell by 0.84 percent after inflation.
As Irwin revealed, “Trump administration officials view increasing business capital investment as the linchpin of their economic agenda, including ultimately driving gains in blue-collar wages. Expect to hear talk of this and any other indicators that suggest it’s happening.”
They credit this progress to expectations that the investment tax incentives in the One Big Beautiful Bill were going to pass (which of course it did). But we’ve had plenty of announcements this year about both new investments in U.S. manufacturing from both domestically and foreign-owned firms encouraged by the Trump tariffs and other trade policy decisions. So the latter are clearly playing a big role, too.
In recent months, we’ve seen the debunking of warnings that the trade duties would trigger a big spike in inflation, and that they would throw the economy into a recession. Now the “uncertainty” claims are looking pretty bogus, too – except for the certainty that these developments will keep pushing the most extreme Trump and tariff critics to spot ever more far-fetched reasons (as noted here) to attack the president’s trade agenda.
