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LONDON (Reuters) - The U.S. economy continues to recover from the depths of the Great Recession, although its speed, trajectory and cruising altitude remain the subject of fierce debate.
What's indisputable, however, is that one of the economy's engines has persistently failed to ignite, despite record fuel levels in the tank.
Corporate America has never been more flush with cash. But business investment or capital expenditure - "capex" - has remained depressed, puzzling economists and strategists who have long predicted its resurgence and attendant impact on growth.
Instead, companies have chosen to dip into their collective $1.8 trillion pile of cash to re-hire workers, fund merger and acquisitions activity or buy back their own shares. Boosting growth and returns through long-term investment in their business hasn't registered nearly as highly.
This suggests underlying demand for goods and services is weak - certainly weaker than it should be, given that the economy is five years into a recovery - and not strong enough to sustain a potential growth rate of around 2.5-3 percent.
The problem then becomes circular: weak demand holds back capex, which drags on growth, which depresses demand.
"Waiting for business investment to accelerate has been a painful and thankless exercise," wrote Morgan Stanley in a recent 14-page report on capex. "A close examination of this underinvestment paints a grim picture of productivity rates and the economy's trend growth potential."
Since the 2008-09 economic and financial meltdown, U.S. capex has fallen short of the trend seen over 1990-2007 by more than 15 percent. That's an annual $400 billion gap today, never mind the shortfall accumulated over the previous five years.
On some levels, this reluctance from firms to invest is puzzling.
Productivity growth in the United States - the rate of growth in the level of output per worker - is near its lowest in 30 years, according to Bridgewater Associates. Spending on research, development and technology, would surely improve this trend.
The need for capex spending is also pressing because firms are reaching the point where they simply have to replace aging equipment. According to Morgan Stanley, the average age of industrial equipment is now almost 10.5 years, the highest since 1938.
But just replacing old equipment will not be enough to have a notable impact on economic growth. That will require businesses to spend over and above simple replacement rates, and so far that hasn't happened.
If company executives can be convinced demand can hold up, the conditions for splashing the capex cash are certainly there. Firms have nearly $2 trillion cash, they've reduced their leverage and indebtedness, and funding remains cheap and easy.
The positive impact of capex spending would be felt both in the long- and short-term, according to Bridgewater.
The effect of boosting productivity helps the economy's longer-term growth potential, while corporate profits and margins are "front-loaded" because outlays are amortized over time, yet related sales are booked instantly.
But executives have instead preferred to hoard cash in record amounts. And even when it has been spent it has been diverted to pretty much anywhere but capex.
The global year-to-date dollar volume of M&A deals stands at $2.5 trillion, or an increase of 70 percent on the previous year, led by North America ($1.2 trillion, up 83 percent) and Europe ($773 billion, up 85 percent), according to Deutsche Bank.
This year is almost certain to be the best year for M&A since the crisis.
There has also been a drive to increase dividend payments to shareholders and a resurgence of high-profile share buybacks.
Oil services company Halliburton (HAL.N) has just increased its buyback authorization to $6 billion, oil major Exxon Mobil (XOM.N) spent $3 billion in the second quarter alone, and consumer goods giant Johnson & Johnson (JNJ.N) announced a $5 billion repurchase program last month.
Buybacks and dividends may not be giving the U.S. economy any discernible boost, but they've done the stock market no harm at all, as Wall Street roared to a record high late last month.
Despite the numerous false dawns since the Great Recession, analysts still expect capex to pick up. If it does, then the broader economy should benefit.
Morgan Stanley is confident it will, and predicts growth of around 5 percent. Bridgewater also expects a "gradual acceleration", which could strengthen the economic recovery.
But the danger is that it fails to pick up enough. "A more historically normal cyclical pickup, something in excess of 8 percent annually, simply looks unrealistic," Morgan Stanley said.
Editing by Will Waterman