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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 1.9% by end '17 More »
Inflation 1.8% 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 More »

Weak demand abroad for American-made durable goods, together with overbuilt inventories at home, will continue to sap U.S. business investment. There’s scant reason for American companies to ratchet up investment plans when manufacturers find orders hard to dredge up anywhere in the world. Orders for American-made durable goods will remain flat through the rest of the year and climb just 3% to 4% in 2017.

Asian growth, including in China, is slowing, while the impact on Europe’s economy from Britain’s June decision to pull out of the European Union remains a source of uncertainty. Moreover, the strength of the U.S. dollar in recent years has cost U.S. companies domestic market share while also adding to the difficulty of selling overseas. Then there’s the question of how to gauge the outcome of the November 8 presidential election. Both major candidates, Democrat Hillary Clinton and Republican Donald Trump, pledge a hard look at taxes levied on U.S. corporations, including for new equipment purchases, but it’s unclear what sort of proposal might eventually make its way through Congress.

See Also: All Our Economic Outlooks

On a positive note, the drag from the strong dollar and from an inventory correction will lessen over the coming year. Oil prices figure to stay steady, so the downturn in oil and gas exploration and production that sapped investment in the energy sector should lessen to a degree, at least enough to encourage companies to replace old equipment or bring some mothballed projects back on line. Also, continuing gains in hiring and incomes will create more domestic demand for a variety of durable goods, including appliances to meet the needs of a growing housing sector. But many manufacturing industries will continue to face anemic global demand for goods.


The August scorecard for orders and shipments illustrates how lethargic business investment has become. Despite a 0.6% gain in a core category — nondefense capital goods, excluding aircraft — that is considered a proxy for investment, shipments of completed goods dropped by 0.4% in a sign that factory activity is becalmed. There was a surge in orders for defense goods but private aircraft orders fell, so the net effect for these two big-dollar categories was a wash. Meanwhile, many other industries posted only token gains or declines, another sign of the sluggishness that has seeped into the nation’s manufacturing sector over the past two years.

See Also: Small-Business Success Story: Spicing Up an American Classic