Capex: We reported last January that according to Thomson Reuters data, big companies around the world held almost $7tn of cash and equivalents on their balance sheets at the end of 2013 - - more than twice the level of 10 years ago. Weak non-residential business investment is reflected in recent data that the average age of US industrial equipment at over 10 years is at the highest level since 1938.
A Morgan Stanley research note says that the need for renewed business equipment investment is reflected in the current state of the capital stock.
"By 2012, and after having fallen to a 12-year low in 2000, the average age of industrial equipment shot up to the highest level since 1938. As equipment ages, the rising costs of maintaining the current capital stock should propel spending on business equipment as firms are forced to replace old, retired equipment. Yet replacement alone would result in no net growth in the capital stock. For increased business investment to truly propel the economy, businesses must spend above and beyond simple replacement rates."
The research note says that since the beginning of 2010, when nonresidential structures investment started to recover after the recession, over 80% of the recovery has been due to investment in drilling and mining industries. These areas now total nearly one-third of overall structures investment.
Technology investment appears to be on a positive trajectory, but remains limited by a recent slowdown in the pace of technological progress as productivity has slowed. "What's more, direct technology spending is a very small share of total GDP so gains will contribute in only a small way to overall growth. Investment in technology appears to have been much more resilient in the aftermath of the recession relative to non-tech investment."
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