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Economic Forecasts

Moderate Growth for Business Spending in 2017

Kiplinger's latest forecast on business equipment spending

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GDP 1.6% growth for the year; a 2.1% pace in '17 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 2.4% in '17, up from 2.1% in '16 More »
Business spending Slight gain in '17 after flat '16 More »
Energy Crude oil trading from $50 to $55 per barrel in March More »
Housing Single-family starts up 9% in '16, 11% in '17 More »
Retail sales Growing 3.9% in '17 (excluding gas) More »
Trade deficit Widening 4% in '17, matching increase in '16 More »

Demand for U.S. factory-made goods is strengthening after a prolonged soft patch, pointing to a brighter picture for business investment spending in 2017. Some of the broad-based pickup in orders appears to be based on hope that the incoming Trump administration will claw back some of America’s manufacturing heft by taking a tougher line on trade. In addition, a belief that the worst of the energy price bust is over creates reason for hope that companies will invest more in oil & gas exploration and development.

There’s no boom ahead for business spending, but a 3%-4% increase in 2017 will be a big plus after a flat 2016. Two key reasons for keeping optimism in check: The global economic outlook is only a little better for 2017 than it was this year, while the U.S. dollar’s value is once again on an upward tear. Against a basket of currencies of major trade partners — including the euro, Japanese yen and Canada’s loonie — the greenback has appreciated more than 6% since October. That pushes up prices for U.S.-made goods in foreign markets. But the good news is that the pace of U.S. economic activity is picking up, with third-quarter GDP expanding at an upwardly revised 3.5% annual rate amid robust consumer spending.

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Manufacturing activity is on a gradual upswing, a heartening development after it virtually stalled for two years. Notwithstanding the modest improvement in global growth forecasts for 2017, some of America’s top export markets are still adjusting to fundamental political and economic changes that will limit their buying power. China’s once-torrid growth rate is slowing, though it’s still strong relative to most countries. (China is transitioning to a more consumer-oriented economy, rather than relying on investment to fuel growth. So there is potential for the U.S. to export more there down the road.) Europe is still grappling with how to implement Britain’s surprise 2016 decision to quit the European Union, which will be a damper on growth on both sides of the English Channel in 2017.

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Orders for durable goods (items designed to last three years or more) in November reflected a broadly firming factory sector. Demand increased for machinery and primary metals, a sign that the oil-related drag on manufacturing is easing, and there were also more orders for electrical equipment, appliances and components, and for computers and electronic gear. So-called core capital goods orders, which exclude aircraft, climbed 0.9% after a 0.2% October gain. While year-to-date orders are lower than during the comparable 11 months of 2015, the back-to-back monthly gains are consistent with gradually improving prospects for future capital expenditures. The category of durables that posted a severe slump in November was commercial aircraft, where orders plunged 73.5% from October levels. But that followed a surge in October orders and was largely a reflection of the volatile nature of aircraft orders, which tend to come in batches and with huge price tags. Deliveries occur over a period of years, keeping Boeing and other producers busy.

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