Kiplinger’s Business Spending Outlook: Cautious for Now, Stronger Later

Businesses will invest more as the economy strengthens later this year.

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For now, business spending, especially on capital equipment, is still on a slowing trend, but that could change in a few months. Dollar numbers show tepid growth, but after adjustment for price increases, shipments and new equipment orders have been declining for almost two years, as interest rates have risen, lenders tightened loan standards, and the economic outlook remained cloudy. But that could change as the Federal Reserve starts to gradually lower interest rates sometime around mid-year and the economy begins to strengthen again. 

Financing costs have eased a bit since last year, now that it appears that the Federal Reserve’s rate-hiking campaign is over. But financing costs are still high, roughly double what they were just two years ago, and the Fed is not likely to cut rates until May at the earliest. Business demand for loans continues to be sluggish, both because of expectations of an economic slowdown and because of higher borrowing costs. Small businesses have been hurt the most by high rates and have pulled back the most on borrowing.

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Labor costs should increase at a slower pace in 2024, but that easing process is happening gradually. Annual wage growth should dip from 4.1% now to about 3.5% by the end of 2024, as the economic slowdown reduces hiring, and as lower inflation reduces cost-of-living raises. Wage growth will be highest in sectors with continuing labor shortages, such as health care, and in the Southern states and Texas, where rapid in-migration has increased demand for many services.

The costs of ocean freight and truck transportation have dropped as pandemic-era supply chain disruptions have disappeared, but unforeseen localized problems still loom. Much ocean freight is avoiding the Red Sea and Suez Canal because of attacks on shipping by the Houthis in Yemen, requiring longer transits around Africa for Asia-Europe trade. Low water levels in the Panama Canal caused by drought are still causing delays on one of the world’s most critical waterways.

Prices of materials will likely continue to ease or hold steady in anticipation of slower world economic growth. Commodity prices often rise and fall with reports on China’s economy, and China’s growth is slowing, so prices are not likely to rise much. Steel prices rose after the conclusion of the U.S. autoworkers’ strike, but they may have run their course. Copper is off its highs, but won’t fall much because of lower supply from Chile, a major copper exporter. Lumber prices remain at low levels, as high mortgage rates dampen homebuilding and renovations. 

Some qualified good news for electric vehicle battery makers: The prices of lithium and cobalt – two raw materials needed for EV batteries – are still quite low because battery production has outpaced demand.


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.