NEW YORK: US companies’ capital spending plans are holding up, and mostly exceeding Wall Street forecasts, in the face of policy concerns created by arguments in Washington over the fiscal cliff, the debt ceiling and now automatic spending cuts.
Their willingness to spend on new offices, plants and machinery, as well as a pickup in deal making, shows that they are starting to dig into the massive amounts of cash that has been collecting more dust than interest on their balance sheets. That could prove a welcome counterpunch to a softer outlook for spending by consumers and government.
A Thomson Reuters analysis shows that for 2013, more Standard & Poor’s 500 firms are forecasting capital expenditures that exceeded analysts’ expectations than at any time in the past four years. Recent US government data showed a rise in equipment and software spending in the final quarter of 2012.
If companies ratchet up spending, that could help unleash more hiring and extend the early-year rally in stocks, which tend to rise along with business spending.
“Once businesses start spending, that really means not only are they going to be buying goods, but they’re going to be hiring Americans, and those things are really what’s going to be the multiplier that helps to take this recovery and move it into greater expansion mode,” said Burt White, managing director and chief investment officer at LPL Financial in Boston.
Not all the money will be spent on new projects, of course. And the spending plans announced so far are only slightly above last year’s average. But they comfortably exceed the expectations of analysts, whose capex forecasts fell this year.
Part of the reason may have been the dire predictions about the “fiscal cliff” late last year when analysts were putting together their capex forecasts. At least some chief executives, including DuPont’s, blamed uncertainty over US government budget and tax policy for a reluctance to invest and hire.
“A number of companies said we’re planning our budget cycle on worst-possible conditions,” said Fred Dickson, chief market strategist, D.A. Davidson & Co. Lake Oswego, Oregon.
That companies have turned more optimistic than analysts heartens investors because it amounts to a vote of confidence in the US economy, which has been hobbled by high unemployment and household debt, and now faces curbs in government spending.