Are consumer and business capital spending expected to increase any time soon?
I feel that consumer spending will be reasonably strong, probably rising in parallel with incomes. I also think that the savings rate — which has risen by several percentage points over the last couple of quarters — has probably risen about as far as it’s going to. Business capital spending has been contracting very rapidly and will continue to contract for a little while longer. Companies will be slow to commit to investment projects until they see signs of a pick up in demand. Therefore, capital spending isn’t likely to start growing until next year. One final note: Even though the economy is going to be on the upswing, inflation will stay very low. The initial recovery still leaves the country with excess capacity and a large amount of slack. Inflation will likely stay low for all of 2009 and 2010. Dana Johnson is the chief economist with Comerica Bank. Reach him at (214) 462-6839 or DJohnson@Comerica.com.
