Economic Forecasts

Business Spending: Growing Despite Chip Shortages

Kiplinger’s latest forecast on business equipment spending

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Expect 12% growth in business capital spending this year, compared with a 0.3% decline last year. New orders will rise a similar amount. CEO confidence is at its highest level in 45 years, according to the Conference Board. Purchases of machinery are robust. Businesses are responding to rising demand by implementing expansion plans.

But semiconductor shortages are limiting the sales of electronics, motor vehicles and communications equipment. Worldwide chip production capacity is expanding—good for sales of semiconductor manufacturing equipment—but the shortage will likely persist through year-end. 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.

A boost for purchases of oilfield equipment seems likely, as the price of West Texas Intermediate crude oil appears to have stabilized at over $70 per barrel, its highest in more than six years. The number of active drilling rigs has been on a steady upward path since the beginning of October, but is still 300 rigs short of what was operating before the pandemic.

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