Despite concerns about a looming recession, businesses’ spending habits are not matching the overwhelming worries.
Key Details
- Some of the nation’s largest businesses have reported record capital spending despite executives talking more and more about recession fears.
- Businesses are spending on major investments like new buildings, machinery, and tech.
- The Federal Reserve’s attempts to slow the economy with high interest rates seem to be doing little to slow down spending.
Why it’s important
S&P 500 companies spent nearly $222 billion on capital investment in the third quarter, Axios reports. As more firms are set to report their corporate earnings, that total number is likely to grow.
Compared to last year, companies reported a $176 billion in capital investment. The energy sector in particular has seen profits and capital spending increase rapidly.
Some of these numbers are higher simply because companies have to spend more in a world with higher costs driven by inflation.
While spending may have increased, corporate borrowing has slowed—likely due to higher interest rates. Any capital investment coming from companies will likely be supported by growing profits rather than more borrowing.
Typically, large capital investment signals a company’s confidence in the economy. However, when profits begin to decline, companies will likely cut back on investments that aren’t likely to have significant payoffs.
Current high rates of spending could be an after effect of a profit boom following pandemic shut downs. When that high wears off, companies may have a different approach to investments.
Already surveys are showing that CEO’s confidence in the economy is trending lower and equipment manufacturers are seeing a pullback in spending.
