Economic Forecasts

Business Spending: A Boost from Slowing Delta

Kiplinger’s latest forecast on business equipment spending

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Slowing infections of the Delta variant of COVID-19 will boost business capital spending the rest of this year and early next year. Though next year won’t see spending grow by the lofty 12% expected for 2021, investment in equipment should still rise by a robust 7%, and software 5%. Businesses will need to expand capacity once the economy fully opens up. Also, a gradual diminishing of computer chip and other shortages next year will mean businesses will be able to get the equipment that they have had on back order this year.

Semiconductor shortages have reached their peak, and are beginning to gradually improve, but they will still be felt next year. These shortages have limited the sales of electronics, motor vehicles and communications equipment. Worldwide chip production capacity is expanding—good for sales of semiconductor manufacturing equipment. The auto industry will suffer the longest, as it uses older semiconductors, and only a few new manufacturing facilities will be built for these. But the industry’s needs will most likely be met by sometime in 2022.

In the meantime, manufacturers—even those dealing with supply chain disruptions—continue to purchase machine tools and other equipment, so that they will be ready to ramp up production when they can.  Likely beneficiaries of the spending binge include makers of industrial robots and 3D printers. Workers are in short supply in manufacturing. Robots can help, and they also reduce the need for social distancing among workers. 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. 31% of assemblers are currently using the technology or plan to within the next year, and 17% more plan to within two to three years.

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 U.S., boosting oilfield equipment. The number of active drilling rigs is still 260 short of what was operating before the pandemic.

Sources:

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