Better Late Than Never: How Rising Capital Spending May Extend the Recovery

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Better Late Than Never

Matthew Fontaine, CFA

Matthew Fontaine, CFA - Associate Director of Credit Research & Credit Strategy

The ongoing economic expansion that began in June 2009 is among the longest in history, but far from the most robust. Finally, however, a significant driver of economic growth, global capital spending by companies, which has remained below pre-financial crisis levels throughout the expansion, is recovering. In the first half of 2017, US nonresidential private fixed investment rose by 3.9%, according to the Bureau of Economic Analysis, and global capital expenditure (capex) is forecast to grow by 3% to 5% in 2017. This late-inning surge in capex indicates that the current expansion may yet have room to run, despite signs such as tight labor markets that suggest the economy is approaching its late-cycle phase.

While unconventional monetary policy and consumer spending have helped sustain the expansion and buoyed financial markets, the lack of investment by businesses has contributed to persistently weak productivity growth over the past eight years. The return of capex after several down years is important to investors because it may lead to higher productivity and the extension of the business cycle.

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