The long-awaited pickup in U.S. business investment will take place this year. No, really.
The oldest capital stock in decades, more clarity on fiscal policy, improving growth prospects and companies awash in cash mean the stars have aligned to boost spending on commercial structures and equipment, according to economists such as David Rosenberg and investors such as Brian Jacobsen. Companies from Macy’s Inc. to Warren Buffett’s railroad are planning on increasing capital outlays to enhance competiveness.
“Conditions are perfect, so business-investment rates should be at the kind of levels we saw in the mid-2000s,” Stanford University economics professor Nicholas Bloom said. Equipment expenditures climbed 8.6 percent on average from 2004 to 2006. “If it doesn’t come this year, it’s never going to come.”
Investment in non-residential projects and equipment will rise by about 7 percent this year after a 3.1 percent advance in 2013, according to economists at Goldman Sachs Group Inc. Counterparts at UBS Investment Bank see equipment spending increasing 7.5 percent followed by a 10 percent gain in 2015. Rising expenditures would boost productivity and growth.
Economists aren’t the only ones keeping the faith. Capital spending is “definitely something that is on our radar,” said Jacobsen, who helps oversee $242 billion as chief portfolio strategist at Wells Fargo Funds Management in Menomonee Falls, Wis. He said shares of equipment and software makers and manufacturers of goods used in construction will benefit.
“We were expecting to see an acceleration of capex spending that sadly did not materialize in 2013,” Jacobsen said in an interview. “We’re still thinking it’s something that will play out. What’s different this year is that the economic outlook is slightly better.”
Gross domestic product is projected to climb 2.7 percent this year after broad-based cuts in government spending restrained growth to 1.9 percent in 2013, according to economists surveyed by Bloomberg.