Updated January 25 at 4:55pm

Business spending outlook improves as profits grow

Bloomberg News
The outlook for U.S. business spending is improving as rising earnings, easier credit and pent-up demand prompt companies from Warren Buffett’s Berkshire Hathaway Inc. to Chrysler Group LLC and Lowe’s Cos. to expand. More

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ECONOMY

Business spending outlook improves as profits grow

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The outlook for U.S. business spending is improving as rising earnings, easier credit and pent-up demand prompt companies from Warren Buffett’s Berkshire Hathaway Inc. to Chrysler Group LLC and Lowe’s Cos. to expand.

Orders for nonmilitary capital goods excluding aircraft, considered a proxy for future business spending on equipment and software, climbed 7.2 percent in January from the prior month, the biggest gain since September 2004, revised data from the Commerce Department showed last week. They’re up 9.8 percent since November, the most for a three-month period since 1993.

Auto sales and the rebound in housing are driving gains in consumer spending, spurring companies, including Chrysler and Lowe’s, to update operations, hire staff or add stores. The biggest surge in profits since the 1990s, combined with near record-low interest rates, mean firms have the resources to soften the damage to the economy from federal budget cutbacks.

“The fundamentals that drive investment activity are improving rapidly,” said Diane Swonk, chief economist for Mesirow Financial Inc., in Chicago, which oversees about $67.5 billion in assets. “You really do have all this pent-up demand and catch-up activity.”

The ADP Research Institute said businesses added 198,000 employees in February after a revised 215,000 gain in the prior month that was more than initially estimated.

Business investment was one of the bright spots last quarter that helped the world’s largest economy overcome the biggest drop in federal military outlays since the final years of the Vietnam War era. Spending on equipment and software rose at an 11.3 percent annualized rate from October through December, the best performance in more than a year.

Swonk projects investment will pick up in the second half of 2013 as companies put excess cash to work, banks make it easier to borrow, the housing and automobile industries reach “tipping points” where plants need to be expanded, U.S. energy production grows and technological innovations fuel new investments, she said in a Feb. 13 report that made the case for an “investment boomlet.”

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