Kiplinger’s Business Spending Outlook: Caution Prevails as the Economy Slows

Business spending will be on a slowing trend as they conserve cash because of the uncertain outlook and tighter bank lending.

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Business spending, especially on capital equipment, is still on a slowing trend. Dollar numbers show tepid growth, but after adjustment for price increases, shipments and new orders of equipment have been declining for a year and a half. Businesses are still expecting the economy to slow over the next six months. 

Financing costs have likely peaked for now and are beginning to ease a small amount now that it looks like 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 late next year. Business demand for loans continues to drop, both because of expectations of a slowdown and because of higher interest rates. 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 slow their increase in 2024 but are still coming down only gradually. Annual wage growth should ease from 4.1% now to about 3% 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 large in-migration has increased demand for many services.

Supply chains are working again, and the costs of ocean freight and truck transportation have dropped. The flip side of less shipping demand is reduced capacity, as ocean freight companies cut back on sailings.

Many companies that source overseas are facing a dilemma: Go back to the lowest-cost source, even if it’s in China, or bring sourcing closer to home to reduce geopolitical risks? A number of firms are reshoring to the U.S., but even more have looked to Mexico as a close but still cheap alternative to China.

Prices of materials will likely continue to ease or stay at their current lower levels in anticipation of slowing world economic growth. Steel is up a bit after the end of the autoworkers’ strike. Copper is off its highs, but it won’t fall much because of lower supply from Chile, a major copper exporter. Commodity prices in general had been expected to rise after China abolished its COVID-19 restrictions and its economy rebounded, but the slowing in Western economies is reducing demand for China’s exports. Lumber continues 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 – have dropped rapidly this year, but that’s 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.