2015 Business Spending Outlook

Kiplinger’s 2015 Business Spending Outlook

A gradual pickup in the pace of U.S. economic activity next year will spur stronger investment to expand output, though it will fall short of a spending boom. Figure on about a 7% increase next year in total expenditures on new equipment and facilities to meet both more-vigorous consumer demand for factory-made items, ranging from new cars to home furnishings and appliances, as well as business demand for larger products, such as commercial aircraft and machinery destined for overseas markets.

Though that’ll be a modest jump from the 2014 gain (about 5%), it still falls short of the double-digit annual gains in business spending posted before the Great Recession. While the U.S. economy is securely on track for heftier expansion of about 3% GDP growth next year, concern about weakness abroad and the potential impact that will have on U.S. exports will dampen enthusiasm for spending. Japan is in recession, China’s growth rate is slowing, and Europe is struggling to avoid slipping back into recession.

The main impetus for more capital spending comes from the manufacturing sector. Transportation products in particular will drive the increase. Sales of new cars and light trucks are headed for greater heights — in the neighborhood of 16.4 million to 16.5 million — in 2015. Aircraft makers have backlogs that stretch years into the future, and even railroads are cranking up business — adding locomotives and cars to meet demand for carrying oil, fuel and other petrochemical products.

Moreover, factories are running at 77.2% of capacity (as of October) — far ahead of the low point of 63.9% touched in 2009. Although that’s still short of the 80% mark that is generally seen as a potentially inflation-inducing bottleneck, it is an indication that factories are nearing the point where they must expand to supply increasing demand. That’s confirmed by other indicators of how busy factories are: Monthly shipments of finished goods have crept higher throughout the year. And employment is rising in manufacturing industries.

We don’t have a good handle on Ashtabula County business spending. This would be very useful to know. Maybe an item for a future outlook survey for our dashboard.

Read more at Kiplinger.

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