Economic Forecasts

Business Spending: Most February Headwinds Should Prove Temporary

Kiplinger’s latest forecast on business equipment spending

The recovery in business spending is still on track, despite a sharp drop in February. With vaccinations being given to more of the general public, governors committing to opening their economies, and the latest government stimulus spending, economic growth will be strong in 2021. That means an upward trend for business spending this year.

Business capital spending fell almost 1% in February, after nine months of robust gains. Winter storms in Texas and much of the Midwest reduced activity, which should rebound in March. More troubling was the drop in motor vehicle production, which can be partially attributed to the current shortage of semiconductor chips. It won’t be clear until the March industrial production report (to be released on April 15) how much of the industry’s February trouble was caused by short-term weather issues, and how much is linked to the longer-term chip shortage.

Likely beneficiaries of the capital spending binge this year include makers of industrial robots and 3D printers. Robots remove the need for worries about physical distancing of the workforce. And 37% of U.S. assembly plants plan to invest in 3D printers, a record high. Interest is also high in collaborative robots, which work in close contact with humans instead of as stand-alone ’bots. Thirty-one percent of assemblers are currently using the technology or plan to within the next year, and 17%, within two to three years.

A boost for purchases of oil field equipment seems likely, now that the price of West Texas Intermediate crude oil has risen to about $60 per barrel, its highest level since the beginning of 2020. The number of active drilling rigs has been on a steady upward path since the beginning of October.

Sources:

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