“From our view at 30,000 feet, it does appear that the pieces are falling in place for stronger business investment in 2014,” Morgan Stanley’s Ellen Zentner and John Abraham write in a new 11-page note to clients.
After a dip in business spending due to the sequester, monthly ISM manufacturing numbers have “accelerated at a pace that historically has been strongly associated with trend changes in the economy’s growth trajectory,” they write.
This bodes well for capex spending and for the U.S. economy at large. Here are the economists’ three main reasons why they’re bullish on business investment expenditure this year. From Morgan Stanley:
The Bureau of Economic Analysis has revised upward its estimate of equipment spending in Q3, and incoming data have handily lifted our tracking estimate for Q4 business investment.
The hard data are playing catch-up to the ISM survey, which has turned meaningfully upward following what appears to have been a sequester-induced lull in the spring.
Our transportation analysts have noted “material improvement” across all modes of freight transportation, an encouraging sign of investment and industrial activity.
They predict that investment in equipment will resume its pace prior to the sequester, increasing by 7.9% in 2014 and 7.0% in 2015. Check out how ISM has gotten back on track:
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