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Economic Forecasts

Flat Growth for Business Spending in 2016

Kiplinger's latest forecast on business equipment spending


GDP 1.4% growth for the year; a 2% pace in '17 More »
Jobs Hiring at 150K-200K/month through '16 More »
Interest rates 10-year T-notes at 1.4% by end '16 More »
Inflation 1.7% for '16, 2.4% in '17 More »
Business spending Flat in '16, slight gain in '17 More »
Energy Crude oil trading from $40 to $45 per barrel in Dec. More »
Housing Prices up 5% in '16, 6% in '17 nationally More »
Retail sales Growing 3.4% in '16 and '17 (excluding gas) More »
Trade deficit Widening 4% in '16, after a 6.2% increase in '15 More »

There’s too much uncertainty at home and abroad for U.S. businesses to splurge on new machinery purchases this year. They’re still digesting the impact on global growth from Britain’s vote in June to quit the European Union, and trying to predict the outcome of the November 8 presidential election. Democrat Hillary Clinton and Republican Donald Trump both promise a hard look at taxes levied on U.S. corporations, including for new asset purchases. But their proposals vary widely and it’s unclear what measures might get needed support in Congress.

Add to that U.S. manufacturers’ struggle to sell into foreign markets at competitive prices in the face of a high-valued dollar, as well as overstocked inventories that are a damper on production and the outlook for new investment becomes clouded for the rest of this year.

We anticipate that orders for the full year 2016 will be unchanged from 2015, with just a modest 2% to 3% gain in 2017.

See Also: All Our Economic Outlooks


Still, there are some glimmers of hope. In July, a closely watched proxy for business investment — new orders for nondefense capital goods excluding aircraft — rose for a second straight month, up 1.6% from June. A separate Federal Reserve report on industrial output during July similarly pointed to more robust factory output. So far, though, the signals are too tentative to conclude that a strong pickup in business investment is at hand, especially given that core orders during the first seven months this year remain 4.3% below comparable 2015 levels. The worst is now over in terms of the downturn in oil and gas exploration, and there are signs that energy prices are stabilizing, which will allow manufacturers in the months ahead to at least regain orders lost so far in 2016.

Business investment rose steadily immediately after the 2007-2009 recession but has flattened out over about the last two years. Continued hiring and rising incomes have offset some of that decline, creating more domestic demand for cars and other durable goods, and softening the reduction in capital investment and exports.

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