Investment Is Always More Volatile Than Employment

Catherine Rampell has an interesting piece out about how employers are investing in new capital at a faster rate than they’re investing in new hiring. I think the most important part of the piece, however, comes at the end where she observes that this was also the case in the 1990s but the boom was strong enough then that labor markets were tight.

I think if you look at the numbers, you’ll find that investment is just much more volatile than employment:


The difference between a labor market boom and the tragedy of mass unemployment is, on this chart, just much smaller than the difference between an investment boom and an investment drought. There’s nothing really new about that. The other thing I think we see here is the implausibility of hoping that the Confidence Fairy will ride to the economy’s rescue. Businesses are, in fact, investing at a perfectly healthy clip after a terrifying dip. That leaves it unclear what problem business confidence is supposed to be the solution to. Business confidence won’t boost net exports, business confidence won’t provoke a residential construction boom, business confidence won’t boost government consumption, and business confidence won’t boost consumer spending. So how much investment do we think the Confidence Fairy is going to bring us?