GDP Report Shows It's Time for Business to Step Up

NEW YORK ( TheStreet) -- CEOs spend a lot of time talking about the economy, but Thursday's report on fourth-quarter gross domestic product makes clear that it's time for them to do something about it. They're the missing link between the recovery we have and the recovery we want.

The Commerce Department this morning revised estimates of fourth-quarter growth upward, saying the economy grew at an annual rate of 2.6%, rather than the 2.4% it estimated last month. The new data point to stronger consumer spending than we thought, especially on services: The 3.3% annualized climb in household spending is the best since 2010's fourth quarter. And the data pointed to a little bit smaller hit from the October government shutdown, as government spending at all levels shrank at a 5.2% annual rate.

But private investment, which goes down more than the rest of the economy when things are slow, isn't showing the sharp rebound that should be happening right now. It rose at only a 2.5% rate, as spending on business structures such as offices and factories actually dropped and even residential investment growth slowed. (The residential slowdown is probably about December's weather). Aside from an encouraging 10.8% gain in equipment spending, including a historically average 4% growth pace in intellectual property investment, CEOs sat on their wallets.

Unlike everyone else.

It's not as if they don't have the money. Corporate profits climbed at a 2.2% rate, according to the same report, and continue to be at or near all-time highs.

And it's not as if customers aren't buying -- the government aside. The private economy grew 3.6% in the fourth quarter. After an expected first-quarter lull due to the weather, 4% second-quarter growth is increasingly likely, says Joel Naroff, an economist who consults for regional banks and other clients. A smaller drag from government spending cuts this year will make clear that the private sector is looking increasingly strong.

It's time for more investment -- both because companies can and because they must. Falling work force participation is about to make labor more dear, even as investment capital remains historically cheap. The tepid productivity gains of the last three years -- the weakest such stretch since the 1980s recession -- are not going to cut it. Without better factories and gear, and more-efficient processes enabled by new software and computer services, growth will produce inflation, and then the CEOs will be complaining when the Federal Reserve pulls the string on interest rates.

CEOs know this from business school on -- investment is where productivity and long-term profitability comes from. And, paradoxically, productivity growth is even what makes wages rise for workers whose jobs survive a drive for efficiency. (A tighter labor market like the one that's coming can find places for the others).