June 4 (Bloomberg) -- If the housing bust has you down, don't try taking comfort in the state of spending on goods and equipment by businesses.

This important indicator of the health of the U.S. economy fell into negative territory in the fourth quarter of 2006. Economists now predict real investment growth by companies of only 2 percent to 4 percent for 2007 -- a yawner at best. Richard Berner, chief U.S. economist for Morgan Stanley, last month labeled business investment as the ``biggest wildcard for the economic and inflation outlook.''

There are more signs of trouble.

The ratio of inventories to goods shipped stood near its highest in four years in April, suggesting there's a fat backlog that needs to be worked off. According to the minutes of the Federal Open Market Committee meeting in March, there was muttering that ``investments in goods and services had softened more than fundamentals suggested.''

So what's going on?

The first round of analysis compared the growing tendency of companies to buy back their stock with their weak investment levels. The implication was that it might be business, not housing-stressed consumers, who were becoming the first to lose confidence in the economy. Net withdrawal of equity by non- financial businesses, in other words stock buybacks, grew from $42 billion in 2002 to a record $602 billion last year.

As Bloomberg News columnist Caroline Baum wrote in April, buybacks may be ``a good way to boost the stock price. It's not a vote of confidence in the future of the business.''

Recent Surveys

Recent releases of the Federal Reserve's Senior Loan Officer Survey and the Conference Board's CEO Confidence Survey echoed this point, showing waning confidence in the economy's appetite for goods, services and investment.

The second wave of analysis also took note of the buyback boom, but suggested a more cynical explanation. In a recent piece, New York Times economics writer Floyd Norris cited Robert W. Parenteau, chief U.S. economist and investment strategist for money-management firm RCM, as suggesting that stock-option profits have been the engine of stock repurchases. Norris quotes Parenteau as saying that ``companies are lifting their own share prices in a remarkable feat of manipulation.''

New York Times op-ed columnist Paul Krugman joined this chorus by pointing to Fed research that has found that company decisions over when to buy back stocks ``are strongly influenced by `agency conflicts,' a genteel term for self-dealing corporate insiders.''

Benign Explanation

A third school sees a more benign explanation. According to Roger Kubarych, former chief economist for the New York Stock Exchange, private-equity takeovers -- or the desire to avoid them -- has led companies to scrutinize ``capital spending plans with a fine tooth comb.''

Investment spending might be ``cut back substantially,'' but according to Kubarych, the ``result is leaner, more disciplined and more profitable companies.''

Yet, even this analysis seeks only to put a better face on disappointing business investment, not dispute its occurrence.

Recently, a fourth theory has emerged. This analysis suggests, as Michael Mandel, the chief economist of BusinessWeek magazine has written, that ``corporate America is still spending big time, just increasingly outside the U.S.''

Drawing from a survey of 1,000 U.S. companies, Mandel said that investment abroad grew at twice the pace of comparable investment domestically, from the fourth quarter of 2005 through the fourth quarter of 2006.

Growing Overseas

The Fed Flow of Funds data also show that overseas investment as a share of the economy grew to 1.4 percent in 2006 from 0.9 percent in the first half of 2005. At the same time, spending on equipment and structures in the U.S., which accounts for 70 percent of total non-residential investment, was little changed as a share of gross domestic product.

Corporate bullishness about investment abroad combined with nervousness about investment at home could partially explain why domestic capital outlays have dragged during a period of sky- high profits.

A study released by the Department of Commerce showed that the divergence between U.S. multinational hiring and capital expenditures here and abroad has existed for several years. The study found that between 2000 and 2005, annual spending by multinationals on property, plants, and equipment in the U.S. fell 14 percent. Meanwhile, overseas capital spending by the same companies rose 24 percent.

The implications of this fourth analysis may mean a couple of things.

First, it offers support for those who believe that the U.S. is decoupling from the global economy. Even with a weak dollar making foreign investment more expensive, companies don't seem to allow their pessimism about the U.S. to affect their view of global opportunities.

It also raises larger social and political issues over whether there is a growing disconnect between the profit and share performance of American businesses and capital investment and job growth in the U.S.

If that's the case, this is an issue that is only likely to become more prominent in the days to come.

(Gene Sperling, author of ``The Pro-Growth Progressive,'' was President Bill Clinton's top economic adviser. He is a senior fellow at the Center for American Progress. The opinions expressed are his own.)

To contact the writer of this column: Gene Sperling in Washington at gsperling@cfr.org.

Last Updated: June 4, 2007 00:20 EDT