In his quarterly address to the Joint Economic Committee of the U.S. Congress, Federal Reserve Chairman Ben Bernanke said that business growth slowed recently. "Business spending has slowed," he said. "Expenditures on capital equipment declined in the fourth quarter of 2006 and early this year."
"Much of the weakness in recent months has been in types of capital goods used heavily by the construction and motor vehicle industries," he said, noting the marked effect of the struggling U.S. housing and automotive sectors. Still, Bernanke said the slowdown was not isolated to these two industries. "We have seen some softening in the demand for other types of capital goods as well."
"Although some of this pullback can be explained by the recent moderation in the growth of output, the magnitude of the slowdown has been somewhat greater than would be expected given the normal evolution of the business cycle," said Bernanke. The chairman noted that inventory levels, mainly in industries linked to construction and motor vehicle production, rose over the course of last year, leading to production cuts to realign inventory and sales. Some imbalances remain which have led to the weakness in some business indicators.
Still, Bernanke remained optimistic about the future. "Despite the recent weak readings, we expect business investment in equipment and software to grow at a moderate pace this year."
For a full copy of the chairman’s testimony, visit the Federal Reserve’s website at www.federalreserve.gov.
Source: Jacob Barron, NACM staff writer