Long Term Perspective
Cash flow is to business investment what income is to consumption expenditures. For a long time - between 1996 and 1999 - business fixed investment grew more rapidly than cash flow. The imbalance couldn't continue forever. Cash flow improved in 1999 and part of 2000 so that the growth of these two series were in better alignment. By the end of 2000, cash flow dropped more than business fixed investment once again suggesting that business fixed investment would weaken - and it did. Cash flow improved between 2001 and 2003, moderated in 2004 but generally improved in 2005 before again moderating in much of 2006.

Short Term Perspective
Business fixed investment picked up strength in the third quarter with a 2.6 percent boost (not annualized) in the third quarter of 2006. The bulk of the growth was in nonresidential structures investment although investment in equipment and software also was healthy. Cash flow decelerated in the middle of 2006 with a 0.9 percent rise in the third quarter, following a 2.7 percent increase in the second quarter - both well below the first quarter pace of 8.6 percent. Typically, one can look at cash flow as the income necessary to spur capital spending. Increases in cash flow typically bode well for investment spending.