Capital Spending Rising

A recent survey by the National Association of Business Economists (NABE) contains some better news about capital spending, which is a good omen for future business investment. Here are a few highlights:

* After eight quarters of decline, capital spending expanded, posting a small positive Net Rising Index (NRI 3). The increase was due solely to strong investment by the finance industry, as goods producers, the TUC industry, and the service industry reported mild contractions. The outlook for capital spending over the next 12 months remains positive, however, as all industries except the TUC industry plan to increase spending. The outlook is particularly strong for computers and communications equipment, as firms expect to increase tech spending at almost twice the rate they expect to increase total capital spending.

* Weak product demand continues to be the most important factor hampering business capital spending over the last three months. The most important factor that panelists cite as a stimulant to investment spending over the last three months has been the need to replace or update their existing capital stock. Lower interest rates have also helped, though the rebound in equity markets does not appear to have been a significant positive influence.

* Looking forward, firms expect to boost their capital spending over the next six months in response to reduced levels of uncertainty and some features contained in the recently enacted tax package. In general, though, the rise in capital expenditures relative to the current baseline is expected to be modest, with increases of between 0 and 5 percent more likely than increases greater than 5 percent.