Last month in Monitoring Demand for Discrepancies we observed that Manufacturer’s New Orders have turned negative and explained the potential impact on stocks. To continue this theme here is a chart that chronicles the rolling top in Gross Private Investment that has formed over the last 18 months:
When businesses reduce capital investments to this degree and continue being miserly over a multi-year period, it usually precedes a meaningful decline in economic output. This data has been masked by the cheerful jobs reports in July and August but the business spending downtrend is persistent enough to warrant caution.
The strong jobs market has created a massive windfall for the Internal Revenue Service in 2016. I suspect the Feds may use this cash to “help” sustain the economy leading into November. After that: