Getting Better ?

“Things are getting better, but compared to what?”

-Tom Linebarger President and COO, Cummins Inc.

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As we have noted over the past few months, “less bad” is not the same as “good”:

“In an ominous sign for the economy, much of the profit is being eked out through cost cuts. Executives say they are hesitant to reinvest such profits into their businesses. With large portions of their factories, fleets and warehouses sitting idle, some say they probably won’t see reason to do so for a year or more.

That means job growth and any significant rise in business spending could be a long time coming. That creates a chicken-and-egg problem at a time when the unemployment rate is already nearly 10%: Without more jobs, U.S. consumers will have a hard time increasing their spending; but without that spending, businesses might see little reason to start hiring.

Already, the economy is being starved of investment it needs to spark growth. Net private investment, which includes spending on everything from machine tools to new houses, minus depreciation, fell to 0.1% of gross domestic product in the second quarter of 2009, according to the latest government data. That’s the lowest level since at least 1947.”

There are few signs that any of this will change imminently — this is going to be a long hard slog .¬† . .

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Source:
Cost Cuts Lift Profits But Hinder Economy
MARK WHITEHOUSE and TIMOTHY AEPPEL
WSJ, OCTOBER 13, 2009
http://online.wsj.com/article/SB125539122868481389.html

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