Grab Those Low Interest Rates

Invest in your business through borrowing and increase your efficiency, competitive position, marketing footprint, production capabilities, or whatever else you will need as the economy expands and the global market beckons.

Aw 11691 Economy View Chart

There are many good reasons to be bullish on the U.S. economy in the coming four to five quarters and we will look at some of those reasons below. In this article we will begin with the suggested Make Your Move item—borrow some money! 

I recently had the pleasure of interacting with a group of business leaders in Southern California. The location is important because California has been hit with some of the worst residential mortgage delinquencies and foreclosures in the country. It is also a state with a state government in crisis, unemployment above the national average, and fairly sluggish job growth based on BLS statistics. In short, we are not talking about Texas here. Despite the reasons for conservative non-action, these leaders were aggressively taking advantage of today’s low interest rates. One of our subscribers shared with me how he recently borrowed over $50 million to invest in his business at about 3.6 percent fixed for seven years. Another borrowed a considerably smaller amount at just under three percent, also fixed for seven years. 

>> Machine Tool Orders Up! Trust the numbers: Association for Manufacturing Technology reveals year-to-date orders up 10% over 2011 in the U.S. Visit bit.ly/awnews191

Automation World readers should do the same. Invest in your business through borrowing and increase your efficiency, competitive position, marketing footprint, production capabilities, or whatever else you will need as the economy expands and the global market beckons.

We are not asking you to take anything on faith.  Instead, there are three key reasons for optimism:

1. The consumer is alive and well. Consumers are earning more and spending more. Good news in private sector employment trends portends more spending in the coming quarters.

2. Business-to-business activity as represented by Nondefense Capital Goods New Orders is 7.8 percent higher than this time last year. The spend rate will remain positive for the next four to five quarters. Commercial & Industrial Loans activity has ascended to the highest level in 34 months. Increasing commercial and industrial credit will support capital expenditures while interest rates are low.

3. Europe is not going to pull the United States into recession. There are a myriad of reasons for this. Please see our June 5 blog for a more detailed discussion as to why.

The ITR Leading Indicator
A reliable leading indicator is something of a holy grail in economics. We have a powerful new tool in the ITR Leading Indicator, and it is currently trending higher, signaling good news for the U.S. economy into the second quarter of 2013. Reliability is the key to any leading indicator, and testing has shown that ours has not given a false signal in regards to the overall economy for over 30 years.

Computer & Electronics New Orders over the past 12 months totaled $266.8 billion, down 3.4 percent from the year-ago level. The good news is that the annual new orders trend is moving higher, and that bodes well for more record-setting output in Computer & Electronic Production through the rest of the year.

Audio & Video Equipment Production is ascending with production currently 8.0 percent higher than this time last year. Efficiency gains to reduce unit costs will allow domestic manufacturers to more effectively compete against countries with a low-cost labor advantage. Higher energy costs next year will also provide a cost advantage to domestic producers.

Industrial Machinery New Orders over the past 12 months totaled $35.9 billion, up 1.8 percent rise from last year. The health of the domestic economy, and the prospect of a healthier global economy in 2013, suggests more gains in Industrial Machinery New Orders. Growing New Orders will support rising Machinery Production through 2013.

Alan Beaulieu, alan@itreconomics.com, is president of the Institute for Trends Research (ITR). The ITR blog can be found at www.itreconomics.com/blog.

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