Kiplinger’s Business Spending Outlook: Hints of Slowing

Since peaking last summer, spending by businesses has been slipping on recession fears.

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Labor costs will continue to rise at a faster-than-usual pace this year. Wage growth should ease from 5% to about 4%, but that is still above the normal 3% rate.

Business spending on capital equipment may be slowing on expectations for slow economic growth or a mild recession this year. Spending peaked in August of last year, and has been on a slow downward trend since then.

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Prices of some materials, such as copper and steel, are rising because of expectations that China’s demand will rise in the future. China’s growth is expected to strengthen now that most COVID-19 restrictions have been lifted.

Most semiconductor backlogs are still elevated, and will not likely clear up until well into 2023. Chips for computers and phones are in surplus as demand wanes, but microcontroller and automotive chips still face acute shortages. Ramping up production takes time, as factories take years to build. Another problem: Like most complex industrial machinery, chipmaking equipment requires chips, too. In short, don’t expect the chip shortage to significantly improve until 2023, at the earliest, and it may drag out into 2024. But if a recession happens this year, that could ease shortages.

Sources:

David Payne
Staff Economist, The Kiplinger Letter
David is both staff economist and reporter for The Kiplinger Letter, overseeing Kiplinger forecasts for the U.S. and world economies. Previously, he was senior principal economist in the Center for Forecasting and Modeling at IHS/GlobalInsight, and an economist in the Chief Economist's Office of the U.S. Department of Commerce. David has co-written weekly reports on economic conditions since 1992, and has forecasted GDP and its components since 1995, beating the Blue Chip Indicators forecasts two-thirds of the time. David is a Certified Business Economist as recognized by the National Association for Business Economics. He has two master's degrees and is ABD in economics from the University of North Carolina at Chapel Hill.