Real E&S outlays grew almost 14 percent last year, but the rate of increase thus far in 2005 has slipped into the single digits. Are businesses becoming more reluctant to invest? One answer to this question may be that the slowdown only reflects the usual noise in the investment data.
Another possibility is that higher energy prices are discouraging investment by increasing the uncertainty surrounding the outlook for aggregate demand. Higher energy prices ought to boost investment as firms seek to replace their machines with new, more energy-efficient models, but this effect easily could be swamped by concerns about future weakness in the demand for their products.