E Caterpillar Confirms Kalecki's Historical Truth About The Business Cycle

Caterpillar's CEO, Jim Umpleby has told investors that there will be no new plants constructed even though orders have tripled for the company. From this Reuters article we see that:


Years of watching Caterpillar and other big manufacturers cut inventories, close plants and axe workers in the last downturn has embedded caution in Kirsh’s ambition to expand after the surge in orders, reflecting a more fundamental shift in how many industrial businesses view expansions, according to interviews with Caterpillar executives, more than a half-dozen Caterpillar suppliers and U.S. economic data.
“I just wasn’t sure it was real,” said Kirsh, speaking from a windowless office at the front of Kirsh Foundry Inc., in Beaver Dam, Wisconsin, which makes metal parts for Caterpillar and other customers.
Even with a surplus in demand for its product, Caterpillar CEO Jim Umpleby told investors last month the company will not invest in factory capacity. Instead, it plans to spend more on new technologies, expanding its parts business and selling more rental and used equipment.

The question is whether this example of industrial sector refusal to increase investment and capacity is a sign of the end of the business cycle. Certainly, from a historical perspective, it would be a big red flag. I wrote an article not so long ago about Michal Kalecki, the economist, who said that lack of investment is a sure sign that the business cycle is on its last legs.

I said this about Kalecki:

Kalecki believed that investment finances itself, meaning growth resulting from investment increases profits and savings. Kalecki believed that you could see where we are in the business cycle by the level of investment made. Investment in some sectors is strong, but costs are elevated. Manufacturing investment is clearly lagging, per Marc Chandler.
Manufacturing investment decline coupled with a commercial real estate bubble that could constrain retail investment are a double dose of potentially bad news. It could be that the business cycle's days are numbered.


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Disclaimer: I have no financial interest in any companies or industries mentioned. I am not an investment counselor nor am I an attorney so my views are not to be considered investment advice. The ...

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