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Economic Forecasts

Business Investment Slowly Gains Strength

Kiplinger's latest forecast on business equipment spending

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GDP 2.2% pace in '17, 2.6% 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 2.1% in '18, up from 1.9% in '17 More »
Business spending Rising 3%-4% in '17, after flat '16 More »
Energy Crude trading from $50 to $55 per barrel in February More »
Housing Existing-home sales up 1.3% in '17 More »
Retail sales Growing 3.8% in '17 (excluding gas) More »
Trade deficit Widening 6% in '17, after nearly flat '16 More »

American manufacturers’ recovery is building, thanks to quickening global growth and a weaker dollar, which is boosting exports. New orders and shipments of finished products are picking up smartly, making businesses more willing to up production levels. We look for a 3%-4% increase in business investment spending this year, and an equal gain in 2018, especially if Republicans can deliver on their promise to overhaul the nation’s tax system.

Those are relatively modest increases but far preferable to abysmal performances in 2015 and 2016, when spending stalled out. Entering the final quarter of 2017, business investment is on an uptrend that likely will gain steam in 2018 and beyond if lawmakers reduce corporate tax rates. A tax cut would potentially entice U.S. businesses to bring home trillions of dollars’ worth of profits now parked overseas to avoid taxation.

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Healthy oil and gas drilling is notably feeding the brighter investment outlook. Producers of durable goods like pipe, pumps, valves and trucks are reaping benefits at home and abroad, where U.S. expertise in energy exploration is valued. And the dollar’s diminished value — it’s down more than 7% this year against other major currencies — makes American-made oil field products cheaper to buy. New third-quarter orders rose at the most vigorous annual rate since just before oil’s steep price decline started in mid-2014.

September saw new orders for core capital goods, which exclude defense and aircraft, rise 1.3% for the third month in a row. Orders are running 3.8% ahead of year-ago levels. Finished goods shipments also rose steadily throughout the third quarter. That means factories are humming and adding workers.

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New-vehicle orders ticked up only slightly in September but should gain strength during the rest of the year, as Gulf Coast residents who lost autos in hurricanes Harvey, Irma and Maria replace them. Civilian aircraft orders climbed by double digits over August’s. Communications equipment and computer sales also jumped in September, all underscoring optimism about the U.S. economy.

See Also: How to Get Your Small-Business Loan Approved


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