America’s job drought is really America’s capital spending drought. As of the first quarter of 2011—a year and a half after the recession officially ended—business capital spending in the U.S. is still 23 percent below its long-term trend. If domestic businesses are not expanding and investing, they are not going to create jobs.
The weakness in domestic capital spending is both perplexing and disturbing. It’s accepted wisdom that we needed to work off the aftereffects of the housing and consumption bubbles, but very few economists believe that the U.S. suffered from an excess of business capital spending in the years leading up to the financial crisis. And there’s no sign of a credit crunch for large businesses, which mostly seem to have access to sufficient funds to invest if they wanted.
However, there is one important exception to the investment drought: the communications sector. To keep up with the communications boom and soaring demand for mobile data, PPI estimates that telecom and broadcasting companies have stepped up their investment in new equipment and software by 45 percent since 2005, after adjusting for price changes (see the chart “Communications: No Investment Drought”). By comparison, overall private real spending on nonresidential equipment and software is only up by 6 percent over the same stretch.
In fact, the big telecom companies head the list of the businesses investing in America (see the table “Investment Heroes”). According to PPI’s analysis of public documents, AT&T reported $19.5 billion in capital spending in the U.S. in 2010, tops among nonfinancial companies. Next was Verizon, with $16.5 billion in domestic capital spending in 2010. Comcast was seventh on the list, with about $5 billion in domestic capital spending (companies such as Google and Intel were a bit further down the list.).