by Nyegosh Dube
An article in the Wall Street Journal caught my attention recently. Titled “Investment Falls Off a Cliff,” it describes a large-scale cutback in investments by American companies in recent months, which is happening “at the fastest pace since the recession.” The main reasons for this, according to the article, are the uncertainty surrounding the impending fiscal cliff and a reduction in overseas demand, especially from China and the Eurozone countries. While the second reason is a legitimate, objective factor, the first, which is the primary factor, is pretty discretionary, i.e. it is the result of subjectively-based decisions made by CEOs. But clearly, lots of CEOs are making similar decisions in response to the fiscal cliff situation. I mentioned overseas demand, but what about domestic demand? The WSJ gives a clear answer: “The slowdown in capital spending contrasts with a rebound in U.S. consumer spending and confidence, which has returned to a five-year high.” Domestic demand is quite robust, yet investment and hiring are dropping off. What gives?