Since the financial crisis, businesses reluctant to invest in its operations have been using much of their cash to reduce debt or are pay shareholders in the form of dividends.
“The tide is turning,” Charles Schwab’s Liz Ann Sonders writes. “The private sector is largely through its painful deleveraging process; business confidence indexes have turned up; and bank lending — notably commercial and industrial (C&I) lending — is on the rise.”
“While consumption growth has slowed this year, and tight credit has led to disappointing housing activity, we’re finally seeing at least a temporary burst of stronger business capital spending,” Morgan Stanley’s Vincent Reinhart said. “Beyond the recent acceleration, we look for capital spending to grow at a 4% to 5% pace over the next couple years.”
Importantly, corporate America’s capital equipment is getting old.
Ageing equipment combined with economic growth will necessitate an increase in business spending, which in turn should be good news for economic growth.
“The average age of private fixed assets is at a 50-year high,” Sonders writes.