More Evidence Of A Recovery Led By Business Spending

Bloomberg reports that business economists have provided a little more hope that corporate investment could help bring an economic recovery. The National Association for Business Economics survey of 48 economists found an expected increase in business spending of 7.2% in 2010. That's a significant increase from the 4.2% gain expected from the survey back in November. This continues to provide a little hope that, even if consumers don't ramp up their spending, businesses may pick up the slack.

Back in October, I began suggesting that the U.S. would probably have to look to corporate spending to lead recovery. There have been kernels of evidence contributing to that hypothesis ever since. Today's news marks another significant datapoint. 7.2% is a large increase, and much larger than what's expected from consumers, who I recently noted aren't spending much more now than they did in 2009.

But it is enough? I guess that depends on what you mean by "enough." Even if consumer spending is flat in 2010, businesses increasing their investment in this manner would certainly ensure that we don't find ourselves in a double-dip recession. But I'm not convinced it will result in a quick recovery in unemployment. It's important to remember that consumer spending amounts to 70% of the U.S. economy. So, even if you assume that the other 30% is all business spending (and it isn't quite that simple), that would translate to GDP growth of 2.2% for the entire economy, if consumer spending, government spending and net exporst all stay flat. And if consumers, for some reason, ended up spending just 3.1% less, then it would erase that entire 7.2% spending growth on the part of business.

So the narrative remains the same: we really need a recovery in consumer sentiment for the broader economy to achieve significantly better economic growth prospects. Still, this rebound in business spending is notable. It should ensure that we remain on a good path, and that employment improves steadily, though slowly. And during that time, as unemployment declines, consumers should start feeling more comfortable opening up their wallets again too.