Thursday we learned that new orders for nondefense capital goods (excluding aircraft) in the US fell for the 3rd straight month, to 5 year lows. What do we mean by nondefense capital goods? All kinds of industrial machinery and equipment. Basically, things we would buy to maintain or upgrade the capabilities of a lot of businesses.
Declining new orders correlates with decreased investment in American businesses. That’s clearly not a good sign.
What does this have to do with innovation? Businesses can’t find enough good market opportunities to justify investing in equipment. In other words, the businesses would rather sit on their cash, or distribute it to shareholders, than invest in their own growth.
This is a huge opportunity for scientists and engineers. The world’s hunger for real, non-financial innovation could not be any clearer. There’s a reason we have ultra low and negative interest rates all over the world. We have way too many dollars chasing way too few attractive investment opportunities.
You don’t just see this manifest in interest rates. You’re seeing it in the Silicon Valley tech bubble. You have too many investment dollars chasing too few private companies. Venture capitals have paid exorbitant prices for fractional ownership of sometimes fragile businesses.
The tech bubble also highlights the lack of nonindustrial innovation. Silicon Valley is great at pushing back the frontiers around the cloud, mobile devices, and the social space. What Silicon Valley doesn’t offer is focused innovation for industrial applications. We need scientists and engineers around the world to make that happen.
Don’t get me wrong. Industrial innovation is happening. GE is pushing hard in this area now, under the trendy “Internet of Things” umbrella. Commodities-focused businesses are innovating, trying to adjust to a new “lower for longer” pricing environment. These efforts are happening in pockets. We need to expand them more broadly throughout the economy.
Here’s my point. At a high level, bad economic news can be a downer. It’s frustrating that 8 years after the global financial crisis, we’re still barely eking out global growth. Interest rates are still out of whack. Capital continues to flow toward over-saturated financial markets. It’s a real bummer.
At the same time, this is the opportunity. The world is clamoring for real growth. Rather than piling on top of each other in marginal early-stage businesses, investors would love to pour cash into businesses that are making real things, for real people.
The finance and tech worlds can seem sexy. They each have their celebrities. They each have their displays of obscene wealth. But when an economy relies too heavily on these two sectors, we get what we see today.
Now is the time to push. Now is the time to overcome the objections you’ve heard about why your idea isn’t viable, or why you can’t launch a new project.
The alternative to not trying something new is worse. Businesses will keep throwing their capital at financial and tech bubbles that will burst. It seems riskier on its face, but throwing capital at seemingly crazy, off-the-wall innovation-driven bets is much, much safer today.
The world has never needed market-facing scientists and engineers more than it does today. Let’s take advantage.