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Economic Forecasts

Business Investment Slowly Gains Strength

Kiplinger's latest forecast on business equipment spending

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GDP 2.1% pace in '17, 2.4% in '18 More »
Jobs Hiring pace should slow to 175K/month by end '17 More »
Interest rates 10-year T-notes at 2.4% by end '17 More »
Inflation 2.0% in '18, up from 1.4% in '17 More »
Business spending Rising 3%-4% in '17, after flat '16 More »
Energy Crude trading from $40 to $45 per barrel in December More »
Housing Existing-home sales up 3.5% in '17 More »
Retail sales Growing 3.5% in '17 (excluding gas) More »
Trade deficit Widening 4% in '17, after nearly flat '16 More »

A quickening pace of global growth, together with strong domestic housing markets and consumer spending, is encouraging U.S. businesses to invest more in expanding production. Manufacturers are seeing growth in new orders and in shipments of finished goods, such as computers and machinery used for boosting output. Look for a 3%-4% pickup in business investment this year, relatively modest in dollar terms but a nice rebound from two flat years — 2015 and 2016. If the Trump administration had increased infrastructure spending and overhauled the tax code as promised, the uptick might have been greater. If Congress and President Trump implement a plan to improve the nation’s roads, bridges and airports, the prospects for continued business investment gains next year and beyond are good.

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The strong energy sector is also a boon for manufacturing, as oil imports decline and producers gradually ramp up domestic production. More oil and gas drilling rigs at work increase demand for the equipment needed to locate and then ship energy products around the country: from trucks to pumps to valves to pipeline. U.S. expertise in supplying the oil exploration and development industry is acknowledged globally but also gets a lift — along with all other exports — from the dollar’s roughly 6% value loss against other major currencies this year, making U.S. products cheaper for overseas buyers.

Orders for key U.S. capital goods picked up 0.4% in July and now are running more than 3% above year-ago levels. Shipments of nondefense capital goods other than aircraft were up a healthy 1% in July, significant because the shipment numbers figure into the calculation for equipment spending in the measurement of gross domestic product. There was a significant decline in new aircraft orders in July, but it came after an even bigger orders jump in June. (Aircraft orders tend to come in batches and to involve large contracts, so the monthly swings in order value must be smoothed out to discern trends.) At its base, businesses are setting aside their uncertainty about the prospect of tax cuts and gradually increasing spending. If lawmakers can quickly and easily raise the nation’s debt limit, making room on the legislative agenda for tax code changes, prospects are good that this year’s modest recovery in business investment will carry into 2018 and possibly gain strength.

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


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