I Donít Need to Outrun the Bear, Just You!
The headline above is the punch line to a very old joke. The joke has two hikers walking in the woods that have been told by the forest ranger not to run if they see a bear. The ranger informs them that bears are very fast and you cannot outrun one. Then the hikers see a bear and the one hiker immediately starts to run. His companion informs him he canít outrun the bear and the hiker yells back; I donít have to outrun the bear, I just have to outrun you! This old joke actually highlights a point about relative performance that is important in terms of the business cycle. The point is that the business cycle, when coming off a bottom or recession, doesnít have to go back to its former highs right away. All the economy needs to do is just do better than it did last year and business will grow.
A Wall Street Journal article from 1/3/03 highlights that the economy might be in place for a nice increase in capital spending from businesses who have been contracting capital spending for quite a while. The U. S. economy has become more capital-intensive because of spending on technology, which becomes obsolete more quickly. The decrease in capital spending over the past few years has created a situation where even replacement spending can lead to significant growth in spending. The article states:
The first signs of a turnaround in capital spending are beginning to show. Shipments of capital goods, excluding the volatile aircraft and defense industries, sank 18% in the 14 months through November of 2001, but have been edging higher ever since. Despite the November 2002 decline, shipments were still 3.2% higher than in the same month the year before. The growth is more impressive in volume terms; falling technology prices mean each dollar of investment buys more than it did last year.
An increasing budget for capital spending across most industries would be great for business, great for the stock market and great for the economy. Most importantly, we need to remember that for the economy to really improve in 2003, it does not have to be better than it was at itís peak in 1999, it only needs to be better than it was last year. We canít outrun the bear; we only need to outrun the competition. Our feeling is that improved capital spending in 2003 is going to help the economy improve strongly from its base set in 2002.