Short-Term Business Investment Outlook

Here is how economists at Economy.com size up business investment prospects in the short-term.

With stronger profits, better balance sheets, and surging demand, history strongly suggests that businesses will soon step-up their activities and a self-reinforcing virtuous economic rebound will assert itself. Real GDP growth is expected to accelerate from nearly 3% this year to close to 4% in 2004. The rise in payrolls will be sufficient to result in a declining jobless rate by this time next year.

There are of course reasons to be concerned that history is not reliable, however. Senior managers have been put through much in the past several years from terrorism, to wars, to corporate scandals. They may lack the confidence necessary to aggressively expand. This caution is evident, for example, in the continued paring of inventories and investment outside of the replacement demand driven IT purchases.

Another impediment may be the growing prevalence of global out-sourcing of U.S.production and jobs. Off-shoring describes the out-sourcing of previously U.S.-based production and jobs to overseas enterprises, whether they are affiliates of U.S.based firms or are other third party firms. The goods and services produced overseas are then imported back into this country. Off-shoring is not new to manufacturing, but it is new to a wide-range of other information and service businesses.



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