Economic Forecasts

Business Spending: Recession Fears, Supply Chain Turmoil Roil Materials Costs in 2022

Kiplinger’s latest forecast on business equipment spending

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The two key trends shaping materials costs in 2022: Falling demand and constrained supply. On the one hand, persistent inflation, monetary tightening and COVID-related lockdowns in China have slowed global economic activity and caused prices to fall from recent highs. On the other hand, strained supply chains and robust long-term demand prospects mean the costs of many key materials (aluminum, copper, lumber, nickel, steel, etc.) remain elevated, compared with before the pandemic. The bottom line: Even if the global economy slips into a recession later this year, don’t expect a quick return to the prepandemic “normal.”

Meanwhile, manufacturers will continue to purchase machine tools and other equipment, in preparation for better economic times. Though 2022 won’t see business spending grow by the lofty 13% of 2021, investment in equipment should still rise by a robust 10.1%. Software: Up 5%.

One supply chain issue that won’t be resolved anytime soon: A shortage of semiconductors, which has limited output and sales of electronics, motor vehicles and communications equipment. Worldwide chip production capacity is expanding — good for sales of semiconductor manufacturing equipment. The problem: Like most complex industrial machinery, chipmaking equipment requires chips. Plus, the semiconductor industry faces other difficulties, including a disruption to its supply of necessary rare gases (argon, krypton, neon) by the war in Ukraine. In short, don’t expect the chip shortage to significantly improve until 2023, at the earliest, and it may drag out into 2024.

Also in short supply: Workers, which should boost spending on industrial robots. Robots can improve worker productivity, as well as reduce the need for social distancing in factories and warehouses. Interest in collaborative robots is also high. These work in close contact with humans instead of as stand-alone ’bots.

Buildings and structures construction should finally stop declining in 2022 and show a small increase of about 2%. Energy-related construction had seen the biggest drop during the pandemic, but upward pressure in the price of oil is pushing up the number of operating oil rigs in the United States, boosting demand for oil field equipment. The number of active drilling rigs is still 65 short of what was operating before the pandemic.

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