Tech Sector Industrial Production

Tech Sector Industrial Production

August 16, 2005

What’s my favorite whine? We need more capital spending on information technology! The chart below shows why.

July 2005 Tech Sector Industrial Production.JPG

Semiconductors doing fine, thanks to growing global demand and the cell phone sticking out of every teenager’s ear. Computers not quite so good–capacity moving to Asia. But communications equipment sucks big time.

There are two reasons why the communications equipment production is still in the toilet. First, telecom regulations in the US killed capital spending for the past 5 years. As I have written recently, there is a good chance Congress may give us a new telecom law this year that fixes a lot of the problems. That could trigger huge capital spending in high-speed telecom networks, something people in the US know they need to compete in global markets.

The other reason is that Asian countries have had a huge increase in capital spending on communications equipment. The gap between US and Asian orders has been so big that many companies have moved production and R&D facilities to Asia. That portion of lost production will not come back.

This may be the single most important growth issue for the US economy. Our communications network is the central nervous system of the entire economy. We are not competing for jobs; we are competing for capital.

That’s why it is troubling to hear news reports today about ongoing negotiations between US and Chinese officials over panties and tank-tops. They should be talking about capital equipment–high-tech capital equipment–the key to our future productivity.

JR

John Rutledge

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