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Companies Plan To Ramp Up Capital Spending
Key Highlights
- The latest release from the National Federation of Independent Business (NFIB) shows small businesses plan to put their capital spending into overdrive.
- Further, overall optimism spiked to the highest since June 2021 and is now close to pre-pandemic levels.
- The percentage of businesses planning to increase capital spending in the very near term rose to 28%, the highest since January 2022, when companies were spending a lot to accommodate hybrid workers.
- But 2025 capital spending plans are not uniformly positive across industries. Chevron (CVX) plans to lower spending relative to 2024 but others such as MDU Resources (MDU) have ramped up plans given the demand for more infrastructure.
- In general, our view is businesses find the current climate to be positive for increasing capital spending.
Firms Plan to Increase CAPEX
Earlier this year, many businesses admitted they delayed business fixed investments preceding the presidential election and planned to wait until after results were finalized. And now, the latest release from the NFIB revealed businesses are planning to put their spending plans into overdrive.
Capital expenditures (capex) play an important role in the economy, and a ramp-up in business investment will support economic growth in the near term.
The latest figures for November reveal another sizable increase in the percentage of firms planning to buy equipment such as computers and tech hardware. Several additional firms reported big plans to increase capex in the summer of 2023.
NFIB Monthly Survey Spiked After Election
Largest Percentage Since Mid-2021
Source: LPL Research, Natl Federation of Independent Business, 12/11/24
Aggregating the monthly data into a quarterly cadence illustrates the relationship between this survey and one of the components for Gross Domestic Product (GDP). We should expect the rising appetite for capex to be a support for the economy in the near term — both this quarter and the first half of 2025.
NFIB Survey Shows Upside to Capital Spending
Businesses Plan to Increase CAPEX in the Near Term
Source: LPL Research, Bureau of Economic Analysis, Natl Federation of Independent Business, 12/11/24
Businesses appear to have pent-up demand for capex now that we are past the elections. Construction spending for healthcare, power and communication, and other structures is poised to increase, and shipments of capital goods are below current run rates, corroborating business owners’ comments about delaying, but not canceling, capital expenditures.
In addition to the pent-up demand for capex, a pro-business tax plan and lower borrowing costs could also increase business spending.
What About the Latest Inflation Data?
The demand for greater capex could be furthered along by lower borrowing costs as the Federal Reserve (Fed) continues to cut rates. But, will the reacceleration of inflation foil those plans? Probably not. The increase in the consumer price index (CPI) for November was driven by shelter costs, a rise in new and used vehicle prices, and higher medical care costs. However, inflation excluding shelter was 1.6% and is a good barometer of price pressures since most households own their homes. Additionally, real hourly earnings rose 1.3%, giving the consumer plenty of strength to keep spending.
Bottom Line
Roughly a third of the inflation metric is “Owners’ Equivalent Rent,” an imputed value and not a realized expense for homeowners. Wages are growing faster than inflation, putting consumers on good footing as they enter the New Year. The Fed will likely stay on course to cut rates slowly and methodically as the stickier components of inflation are stabilizing. And as businesses respond to a favorable business environment, growth should be supported by both consumer spending and business fixed investment.
Important Disclosures
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Dr. Jeffrey Roach
Jeffrey Roach guides the overall view of the economy for LPL Financial Research and has over 20 years of experience in investing and economics.
