We have heard over and over again that America is still the world’s fountain of innovation, the home of fracking and Facebook. The two “F’s” of American innovation are about to become one: The collapse of oil prices portends a collapse of the shale boom. High-yield energy bond yields have soared from 5% to 12% in the past few months, and investors are fighting to get to the door. Most unconventional oil and gas projects are unprofitable at $60 a barrel, and that’s where oil will trade for the next year or two.
Facebook is a clever gimmick, but it doesn’t do much for productivity.
It doesn’t help to crank up the theme from Rocky and chant, “We’re Number One!” We are in trouble, with a stagnating economy and falling incomes, and we are about to be in much, much worse trouble.
What’s left of the U.S. economy net of alternative hydrocarbons doesn’t look impressive. Here are a few facts about American capital investment:
Take out the energy sector, and capital investment by S&P companies remains 8% below the 2008 peak. We never had an investment recovery.
Take out the top six companies in the S&P technology sector (IBM, Apple, Microsoft, Intel, HP, Micron), and S&P tech capital expenditures are down by a 40% since 2000 and down by 25% since 2013. The top six account for 75% of all capital expenditures among S&P tech companies (in 2000, it was less than 50%). All but the quasi-monopoly tech giants show an investment depression.
In deflated dollars, nondefense capital goods orders from American manufacturers are 20% below the 2000 peak and 5% below 2008.