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Economic Forecasts

Business Spending to Break Out of Stall in 2017

Kiplinger's latest forecast on business equipment spending

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GDP 2.1% growth in ’17, following 1.6% in ’16 More »
Jobs Hiring pace should slow to 160K/month in '17 More »
Interest rates 10-year T-notes at 3% by end '17 More »
Inflation 2.5% in '17, up from 2.1% in '16 More »
Business spending Rising 3%-4% in ’17, after flat ’16 More »
Energy Crude oil trading from $55 to $60 per barrel in May More »
Housing Single-family starts up 10% in '17 More »
Retail sales Growing 4.2% in '17 (excluding gas) More »
Trade deficit Widening 4% in '17, after nearly flat '16 More »

The U.S. manufacturing sector is starting to reap benefits from stronger business investment and a long-awaited drawdown of overbuilt inventories. Spending on costly and long-lasting durable goods such as machinery, computers and electrical equipment is on the upswing, and companies are better at dealing with a stronger dollar than they were a few years ago. In addition, manufacturing is being boosted by a surge in confidence prompted by the Trump administration’s promises to cut taxes for business, slash regulations and increase spending on infrastructure projects.

A 3%-4% rise in total business spending is in store for 2017, modest by past standards but an improvement after two years of near stagnation. Orders and shipments of big-ticket durable goods tend to be cyclical, and those cyclical forces are turning positive. But there are enough uncertainties to keep a damper on expectations. Details of the administration’s fiscal package, for example, remain vague. That’s enough for business executives to remain cautious about overcommitting on new investments. Overseas, the outcome of elections in France and Germany, where populist movements are active, carries the potential for sharp swings in currency values that can adversely affect export sales. The defeat of a leading Netherlands populist in recent elections eased those concerns to a degree, but some worries remain.

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New orders for nonmilitary equipment excluding aircraft dipped a slight 0.1% in February. But shipments of finished goods surged on heftier demand for machinery and aircraft, confirming signs that manufacturing is on its firmest footing in some time. The Federal Reserve has noted a jump in manufacturing output in the opening months of 2017, and the Institute of Supply Management said its February purchasing managers’ index hit its best level since August 2014. Orders for commercial aircraft continue to be notably strong, up 47.6% in February, after an 83.3% leap in January. Boeing tallied 43 orders for new airplanes in February and 26 in January.

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