Economic Forecasts

Business Spending: Looking Forward to the End of Supply Shortages

Kiplinger’s latest forecast on business equipment spending

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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 the end of 2022.

Prices of steel and other raw materials should ease next year. Shipping problems will also resolve themselves, reducing costs. Though next year won’t see business spending grow by the lofty 13% expected for 2021, investment in equipment should still rise by a robust 7%, and software 5%.

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.  Spending on industrial robots is rising 35% from a year ago. Workers are in short supply in manufacturing. Robots can help, and they also reduce the need for social distancing among workers. 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 223 short of what was operating before the pandemic.

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