US investment strike

The latest revision of US GDP for Q3 2011 also revealed another rise in corporate profits.  According to the official data, corporate profits are now at an all-time high in nominal terms at $1977bn (after adjustments), or nearly 20% above the peak in Q3 2006 before the financial crash.  Profits fell 42% from that peak to a trough in Q4 2008 before making a humongous 200% rise to the current level in Q3 2011.  Corporate profits have been growing much faster than the US economy’s gross domestic product (GDP), so much so that corporate profits as a share of GDP have reached 13%, an all-time high.  So the recovery in profits has been at the expense of income going to labour.

That’s no problem for capital,of course.  But what is a problem is that, despite the huge rise in profits to new heights in absolute terms and relative to GDP, investment is not recovering.  Business investment peaked in nominal terms at $1689bn at the beginning of 2008, just as the crash began.  It fell 23% to the end of 2009, when it bottomed.  It is now up to $1565bn, a  rise of 20% from that bottom, but still 7.4% below its peak.  So although profits are some 20% above their previous peak, business investment is still way below.   Indeed, fixed investment as a share of corporate profits is at a new low for the decade.

This is the worst investment performance in any US slump since the war.  US capitalist businesses are still on an investment strike.  And with the lack of investment comes an insufficient rise in employment to get the unemployment rate significantly down.  And it does not look promising from here.  The growth in corporate profits has now slowed to pretty much the average rate of the last decade with signs that it is set to slow further.

As investment follows profit under capitalism and as it has done in the Great Recession, we can expect investment growth to slow from here too.  The Great Recession continues to morph into below-trend economic growth at best, or a long depression at worst.

6 Responses to “US investment strike”

  1. purple Says:

    I think this mostly has to do with the real estate crash. Investment in Equipment and Software remains strong. But there is no reason to build more houses or more malls. And with the continuing growth of internet commerce, the liquidation of commercial real estate would seem to be only beginning.

  2. michael roberts Says:

    My figures for investment refer to business investment and exclude residential investment. However, you are right that the recovery in investment in business equipment has been stronger than the overall business investment figure. Investment in equipment has just surpassed its last peak at the end of 2007 – four years later! But investment in bigger and more expensive structures (factories and offices) is still way down, making the overall business investment figure still below the previous peak.

  3. ken Says:

    As many U.S. companies are global in reach perhaps much of their investment is in developing markets. It would be good to have an analysis of this to see how much of their investment is in the U.S. and how much outside the U.S. Perhaps investment outside the U.S. might be increasing.

  4. Jim Devine Says:

    I think that the word “strike” is too dramatic. It’s not like the capitalists have formed an organization — a capitalist version of a labor union — and have collectively decided to refuse to invest. It’s also not like the investment strike that hit Allende in Chile and even Mitterand in France (combined with capital flight). It’s not the kind of “John Galt” strike that Teabaggers perceive or hope for. It’s more like a bunch of individual decisions in reaction to a general problem of inadequate demand for their product and the resulting unused industrial capacity. Why expand operations if current capacity can’t be used fully? Further, it makes sense for them to be a mite pessimistic in the wake of the popping of the housing bubble and the Wall Street melt-down of 2008.

  5. paulc156 Says:

    Michael Burke writes that US profits were not especially large as a percentage of GDP [he uses Gross Value Added rather than GDP and Gross Operating Surplus rather than profits [using OECD 2009 data]].
    He makes the point that those countries where profits were a larger percentage of GDP than the norm have suffered dissproportionately.eg;Greece,Italy,Ire and Spain.

  6. Matt Says:

    ken is asking the right question. The real multinational operations of U.S. capital must not be left as an “externality” but an integral part of the rop/investment picture.

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