U.S. Capex: Beyond the Fiscal Cliff

Conditions are ripening for a modest bounce in U.S. capex, so long as the fiscal thrust in 2013 is manageable.

US Capex, Beyond The Fiscal Cliff

I t is now well known that U.S. capital spending has already been a primary victim of the impending fiscal cliff. In particular, uncertainty surrounding future tax policy has immobilized the corporate sector’s capital spending plans and various business surveys have highlighted that outlays are at least temporarily on hold because of government policy.

For example, the Philadelphia Fed survey of capital investment intentions is approaching a level that typically corresponds with recessions. The survey is a good leading indicator for overall non-residential fixed investment and suggests that investment will weaken further in the next six months. However, the ‘good news’ is that this oscillator is already near its weakest level (excluding the 2008 experience at the height of the Great Recession). There is historical precedent for a sharp snap back in sentiment, should the fiscal cliff get resolved in a mild manner (our base case is for a drag of 1.5% of GDP).

Importantly, fundamentals suggest that absent a fiscal cliff, the outlook for capex spending should brighten somewhat in 2013 relative to this year. Consumers are past the worst in terms of deleveraging, the Fed has further committed to aggressive monetary policy for an extended period and the corporate sector’s balance sheets are still healthy.

Bottom Line: There is potential for a ‘catch up’ phase in investment spending beyond the fiscal cliff.

Click here for a trial to BCA Research.

Print Friendly
Macroeconomic Research
BCA Research About BCA Research

BCA Research is the world’s leading provider of independent investment research. Since 1949, the firm has supported its clients in making better investment decisions through the delivery of leading-edge economic analysis and comprehensive investment strategy research. With access to over 150,000 raw time-series, BCA strategists are aided by one of the most extensive research databases in existence, cover every region of the globe, and provide analysis on virtually every investable asset class. BCA maintains a head office in Montreal, with local offices in New York, Los Angeles, London, Hong Kong, Sydney, and Buenos Aires. Not yet a client of BCA? Take a short trial to our research.

Speak Your Mind