Can recent years strength in business investment spending be sustained in 2006?
Yes. All of the factors that traditionally have influenced capital spending are positive. Moreover, this is the stage of the business cycle during which capital spending often strengthens. Business investment spending rebounded very slowly from the 2001 recession for a variety of reasons, including the accounting scandals and the implementation of Sarbanes-Oxley, but in recent years has grown rapidly. Business fixed investment has increased at an 8.1 percent average annualized pace during 2003-2005. Investment in information processing equipment and software was particularly strong in the second half of 2004 and slowed abruptly in the first half of 2005, reflecting the phasing out of the bonus depreciation for new capital, but it reaccelerated in the second half of 2005. Investment in structures lagged behind earlier but is now gaining momentum. Capital spending will continue to be supported in 2006 by increasing product demand, record levels of operating profits and cash flows, and lo
