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Economic Forecasts

Business Spending Up 5% in 2019 but Worry Is Mounting

Kiplinger’s latest forecast on business equipment spending


GDP 2018 growth is 2.9%; 2.5% for 2019 More »
Jobs Job gains will be around 180,000 per month in 2019 More »
Interest rates 10-year T-notes at 2.8% by end ’19 More »
Inflation 2.2% in ’19, up from 1.9% in ’18 More »
Business spending Up 5% in ’19 as global growth slows More »
Energy Crude trading from $55 to $60 per barrel in June More »
Housing 5.35 million existing-home sales in ’19, up 0.2% More »
Retail sales Growing 4% in ’19 (excluding gas and autos) More »
Trade deficit Widening 7%-8% in ’19 More »

Slowing global growth, waning benefits from last year’s tax cut and a strengthening dollar are taking a toll on U.S. business investment. The optimism spurred by reduced corporate taxes, which fired up a spending boom during the first half of 2018, has dissipated. It’s been replaced by caution as businesses worry that weakness abroad will sap demand for U.S. commodities and manufactured goods. China, one of the United States’ top export markets, is losing momentum. Key economies in Europe — notably Germany — are facing strain, while the wider European Union faces uncertainty about the course of Brexit, the British decision to quit the common market area. A split from the EU in March by Britain without a deal on how to manage future relations would likely damage both sides’ growth. Increasing recognition of how disruptive the separation process is may lead to an extension of negotiations between London and Brussels, but extended bargaining won’t ease industries’ concern about future trading relationships.

The Trump administration is negotiating terms with China for extending a truce in their trade war. The world’s two largest economies are aiming for an agreement to tamp down a tit-for-tat tariff battle that is due to escalate at the beginning of March, when U.S. penalties on some $200 billion of Chinese imports are due to more than double to 25%. That March deadline now appears to be flexible amid intensifying talks in Washington and in Beijing. Still, there’s no guarantee the two sides will be able to agree on a pact to ratchet down China’s huge annual surpluses on its trade with the United States.

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China is offering to buy more U.S. agricultural products like soybeans, but American officials want a much more sweeping agreement that would oblige China to change its ways and accept enforceable standards for respecting copyrights and U.S. intellectual property. Beijing maintains that some of the U.S. charges of intellectual property theft and forced transfers of technology are unfair and represent a bid to curb its economic development. So far, the United States has levied tariffs against $250 billion of Chinese goods and has threatened to tax another $267 billion, which would mean that virtually everything China sends to U.S. markets would be affected. Besides China, the Trump administration has imposed tariffs on steel and aluminum imports from most countries, even Mexico, Canada and its allies in Europe. So costs of raw materials for U.S. manufacturing have climbed, and prices for finished products have climbed to recover the charges.

Capital spending will slacken further in 2019, to around a 5% increase, after 2018’s gain of just over 6%. Manufacturers are coping with headwinds at home and abroad, as the stimulus from last year’s tax cuts disappears and the clock runs down on time-limited incentives for capital investment. U.S.-China tensions are a wild card for the trajectory of spending. If no agreement is reached on long-term trade, then a 5% growth estimate may be too optimistic. But a settling of differences between Washington and Beijing would significantly ease the uncertainty that is holding expansion back. A U.S.-China deal wouldn’t unleash a torrent of spending, since global growth is waning, but it would enable this year’s increase to at least match 2018’s.


A key business investment gauge offered a less-than-encouraging measure in December. Orders for nondefense capital goods excluding aircraft, considered a proxy for business investment plans, dropped by 0.7% after falling 1% in November. Shipments of finished goods were up, however, by 0.5%, and they posted a 6.5% gain during the full year of 2018. Orders of primary metals, machinery and electrical equipment were down as 2018 ended. Fabricated metals registered an increase in orders, as did transportation equipment, which includes new cars and trucks. The Federal Reserve recently noted that business investment was struggling in several regions, and that manufacturers were either delaying or deferring capital expenditures while they monitor trade tensions and assess the depth and duration of a global growth slowdown.