Business Spending Forecast

Economic Forecasts

Business Spending Up 5% in 2019 Despite Trade War

Kiplinger’s latest forecast on business equipment spending


GDP 2.6% growth in '19 More »
Jobs Job gains near 180,000 per month in '19 More »
Interest rates 10-year T-notes at 2.8% by end ’19 More »
Inflation Up 2.2% in ’19 More »
Business spending Up 5% in ’19 as global growth slows More »
Energy Crude trading from $60 to $65 per barrel in August More »
Housing 5.35 million existing-home sales in ’19, up 0.2% More »
Retail sales Growing 3.7% in ’19 (excluding gas and autos) More »
Trade deficit Widening 7%-8% in ’19 More »

A softer pace of global growth and ebbing stimulus from last year’s tax cuts are crimping business investment plans. Tax incentives that kicked in at the start of 2018 spurred a burst of spending in the first half of last year, but optimism has since given way to caution as trade war tensions between the United States and China linger. The tariff battle between the world’s two leading economies has taken a heavy toll on U.S. exports of commodities, such as soybeans, and the fear is that it may also adversely affect manufacturing sales. China, the top market for U.S. exports, is losing momentum. Key European economies such as Germany are under strain, while indecision about how Britain will exit the common market leaves the European Union in a state of flux. What to do about Brexit — and the question of whether it’s still happening — has been pushed back to October 31.

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A trade deal between China and the United States, which remains under negotiation, would lift global spirits. China is offering to buy more American commodities and goods, but U.S. officials want a more sweeping agreement that makes China change its ways and accept enforceable standards for respecting U.S. copyrights and other intellectual property. Beijing views some of Washington’s demands as attempts to restrain China’s development. Washington is also having trade tiffs with allies, including Canada and Mexico. The U.S. has imposed tariffs on imported steel and aluminum. Those penalties have pushed up U.S. manufacturers’ costs and allowed U.S. steel producers to jack up their prices.

We continue to look for a modest 5% increase in 2019 capital spending, down from last year’s 6% gain. Manufacturers are facing headwinds at home and abroad. In addition, aircraft exports — long a strong sector contributor — could be at risk. Backlash following two fatal crashes of Boeing’s 737 Max passenger airplane could cost it foreign orders. It has halted deliveries of the troubled aircraft and scaled back its production.

There was some upbeat news in a key investment gauge in March. Orders for nondefense capital goods excluding aircraft, which is considered a proxy for business investment, posted a 1.3% increase over February, the strongest gain in eight months. Demand for communications equipment, computers, cars, trucks and other items increased enough to keep factories busy. But the good news on orders was tempered by a 0.2% decline in shipments of completed goods.