What's going on with investment?
The sales job on the tax cuts is that it would boost business investment. In addition, accelerated capital depreciation should have been another reason to invest.
That hasn't happened. A year after the tax cut was passed, we've just had the third consecutive month of flat-or-lower capital goods orders non-defense ex-air. The average for the past 12 months is +0.3% m/m compared to +0.7% a year ago.
What's especially worrying is that this was October data. With the drop in oil in the past month, investment will track lower in the months ahead as drillers cut back. The fall in equity markets will also make executives think about buy backs, debt repayments and other options instead of investing.
At the same time, the trade war is escalating and starting to hit hard, and that raises questions about future economic growth.
Add it all up and there is some justification for the sour mood in markets. The question to ask is: How much will the dollar fall if the Fed hits the pause button on rate hikes?
