Brian Romanchuk

In previous articles (example), I have been arguing that investment is the major driver of the private sector cycles. (I am using the national accounting definition of investment, and not the act of purchasing financial securities.) We can now turn to the data, and the important question: how are we doing right now?…

There are a number of categories of expenditures that are all lumped under the notion of investment. The major categories of interest are:

• Investment by government (which is a policy decision).
• Private Residential (houses, apartment blocks) investment.
• Private Inventory growth (not included in fixed investment).
• Private non-Residential (includes equipment, non-residential structures, etc.).

The decision-making behind each category is different, and so there is no reason to believe that we can explain all of these types of investment with the same measured variables. (This is unlike simplified economic models, where all investment is under the control of some representative firm or household.) For example, if sales are rising, and the inventory-sales ratio is falling, we might expect firms to step up production in the near run to bring up inventory levels, regardless of their views on long-term fixed investment.

As a result, we need to break our analysis of investment by category. This article focuses on the last category -- private fixed non-residential investment -- which is depicted in the chart at the top of the article....

Bond Economics
Initial Comments On U.S. Fixed Investment
Brian Romanchuk