Consumption strong, business investment weak

click on charts to enlarge

The GDP release on Friday revealed an interesting dynamic. Consumption is strengthening (illustrated in the first chart by the ratio of personal consumption of durable goods to GDP - a good gauge of consumer vigor), while business investment is weakening (in the second chart I plotted the ratio of private nonresidential fixed investment to GDP).

Indeed, we know that, recently, employment reports have been good and, taking into consideration the dynamic I mentioned above, it means that businesses have started to invest in human capital more than in software, machines and structures.


Is this good or is it bad?

I noticed from the second chart that previous recession entries took place with the ratio starting to drop as it does now. Still, during the expansion before 2000 one downtick in the ratio could happen without the economy peaking. But two downticks in a row represented a top, so the next GDP release is pivotal.