Spending by big US companies on plants and equipment is waning as the sug; rush from last year’s tax cut wears off and the trade stand-off with China damps confidence in boardrooms. Morgan Stanley’s index of intended capital expenditure by US companies dropped to its lowest level in two years last month, while S&P Global estimatE that CapEx growth will weaken to 3 percent this year from 11 percent in 2018. This data paint a picture of eroding faith in the health of the global economy and concerns over the trade spat between the US and China. While a tentative truce was struck between presidents Donald Trump and Xi Jinping at last weekend’s G20 summit, economists say the uncertainty over tariffs is likely to weigh on companies’ willingness to invest.
“Lowcapex growth is very worrying,” said Lori Heinel, deputy global chief investment officer for State Street Global Advisors. “You’re starting to see the trade tensions and the macro growth concerns play out in business confidence – companies won’t open a new factory if they think we’re on the cusp of a recession.”
Softening CapEx growth comes after a strong showing last year, when Mr. Trump’s administration overhauled the tax code, chopping the corporate rate from 35 percent to 21 percent. The reduction later triggered a surge in corporate investment. Easing capex growth “is partly influenced by continuing uncertainty around trade”, added Ellen Zentner, chief US economist at Morgan Stanley. “The late economic data are pointing to a softer picture for business investment ahead.’ The forecast CapEx slowdown comes as US companies keep plowing money into share buybacks.