Market Commentary

Cap-Ex Spending

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Capital Expenditures by corporation help drive future earnings growth and boost economic expansion. In 2017, with the corporate tax reform, U.S. companies increased their expenditures by 10.1% in 2018; more than double the 4.1% in the prior six months. Now that spending is falling.

In the most recent third quarter it rose only 2.5% and there are estimates it may fall to 1% over the next year based on a recent survey of CEOs. This added to the Conference Boards’ CEO Confidence Index, which fell from 55 to 42 in December, this does not bode well.

For investors this means that a reduction of this type of spending could lead into a recession. It certainly will mean slowing economic growth. Cap-Ex spending has fallen for years. There is another possibility as well. Many companies are turning to the cloud thus reducing their need to spend on upgrading their computer equipment, but no one has done much research in this area as a new direction for businesses.

Regardless it is not good news.

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