As President Trump returned from Davos, I want to emphasize first that he is standing on top of the world, in terms of American achievements and influence. And second, new numbers coming out today showing the U.S. business investment boom continues to intensify.
In particular, the key category non-defense capital goods, excluding volatile aircraft, which is really the core measure of business investment, is now up 9.9% at an annual rate for shipments over the past three months. Nearly double the twelve-month rate.And new orders are up 8.5% over the past three months, compared to 5.5% over the past year. These investments cover machinery, equipment, computers, and electronics, among others.
I’m certain that this surge in what’s called capex is related to the 100% full cost immediate expensing embodied in the one, big, beautiful bill, that was made retroactive to Mr. Trump’s inauguration back on January 20 of last year. It’s another example of the success of the President’s policies. And this goes hand in hand with the pickup of industrial production, both consumer goods and business equipment.
And the spurt in GDP, which rose 3.8% annually in the second quarter, 4.4% in the third, and perhaps 5% in the fourth. That’s right, there’s a Trump boom going on. And it’s based on his policies of tax cuts, deregulation, drill, baby, drill, and reciprocal free and fair trade.
People always say 70% of the economy is consumer spending, well that might be technically true, but they miss the fact that when you look under the hood, it’s actually business to business spending that drive the largest share of economic growth, simply because it’s businesses who hire the workers and it’s businesses who pay their wages.
You can’t have a strong consumer economy unless you have a healthy business economy. And that’s why the Trump policies are so foundational.
Advancing business investment is also helping to drive a productivity boom. As economist Ed Yardeni notes in his late newsletter, all that capital spending has been paying off by boosting productivity and profit margins. Indeed corporate profits and margins are running at record levels, and that of course gives businesses the wherewithal to hire more and to pay higher wages. So this whole sequence of tax incentives, business investment, productivity, profits, and wages is blowing up the so-called affordability problem. Basically it’s just good solid economic growth.
And finally, take-home pay rising roughly 4% is running well above the recent 1.6% core CPI or the 2.3% core PCE deflator. It’s worth about $2,000 for an average family. So we surely don’t want any kind of government shutdown to get in the way of this Trump boom, which is the envy of the world.And we surely do want a new Fed chair who understands what Mr. Trump said at Davos, that economic growth does not cause inflation.
The old Fed models believe the economy can’t grow at 4%, 5%, or 6%, but instead must remain under 2%. Well they’re wrong. So Jay Powell and many of his predecessors would tighten policy and stop the boom. They are wrong. The old Phillips curve model of a phony trade-off between growth and inflation, should be mothballed.
We have a new world order of low taxes and deregulation, and falling energy prices and rising productivity, all stimulating a boom that is producing more factories and more goods at lower prices. The new Fed chair should embody the new Trumpian economy. Kevin Warsh and Kevin Hassett understand Trumponomics. They can be independent, but still understand that the supply-side productivity boom does not cause inflation.
But no one can be sure about Wall Street-er Rick Rieder, whose name has popped up for the Fed. I want to be fair here, but there is evidence that he donated to the George Soros ‘Act Blue’ political campaign, and variously earmarked contributions to ultra-left-wing Democrats, like Sherrod Brown, Hakeem Jeffries, Jon Tester, or the never-Trumper Nikki Haley.
This doesn’t sound like Trumponomics to me. And if I’m wrong about this information, I’ll happily recant, but there is FEC (Federal Election Commission) evidence. Why not stay with the best? One of the two Kevins will do just fine.
