US Businesses Tap The Brakes On Spending

economy, corporations, spending, investments, capital, SPDJI data, composite Purchasing Managers Index, IHS Markit, Atlanta Federal Reserve survey, news

Economic uncertainty and fear of the unknown have prompted big businesses to pull the plug on investments and reduce spending, The Wall Street Journal (WSJ) reported Sunday (Nov. 24).

On the flip side, overall U.S. business activity is starting to show signs of rebounding as global economies slow down, a Nov. 22 WSJ article said.

Data firm IHS Markit’s composite Purchasing Managers Index (Composite PMI) for the U.S. showed a four-month high of 51.9 in November, up 1 percent over the previous month. The index measures “activity in businesses.” A Composite PMI of more than 50 points indicates growth.

IHS Markit’s Composite PMI for the Eurozone fell to 50.3 in November compared to October’s 50.6. This indicates that the “currency area’s economy was close to stagnation.”

The industrial sector showed the biggest slowdown among U.S. S&P 500 firms, with a spending reduction of 10 percent — $1.8 billion. In financials, spending fell close to 8 percent or $951 million. Communications-services companies upped spending by 4.5 percent or $1.2 billion.

Capital spending went up by 0.8 percent — $1.38 billion — in the third quarter, WSJ reported, citing S&P Dow Jones Indices (SPDJI). But the increase came from just a few big companies, namely Amazon and Apple. The two tech giants raised capital spending by $1.9 billion during the quarter. Without their spending, the other 438 firms reporting would have posted a drop in spending, the news outlet said.

Three other firms increased capital spending — Intel, Berkshire Hathaway and NextEra Energy — which helped offset the drop in spending by others. The five companies combined upped their capital budgets 30 percent or $4.7 billion, according to SPDJI data.

Companies decreasing capital investments point to slowing demand more than the U.S.-China trade war. Economists and analysts say it’s timing; the tariffs coincided with the start of the pullback in the third quarter of 2018.

The Atlanta Federal Reserve surveyed businesses earlier this month about the effect the trade war had on spending. The results showed that one in five manufacturers — 12 percent — cut capital spending or postponed projects in the first half of 2019 due to trade tensions. That is double the rate from the first half of 2018.

Former Federal Reserve Chair Janet Yellen said in January that there were signs pointing to a slowdown in business spending in 2019.


New PYMNTS Report: Preventing Financial Crimes Playbook – July 2020 

Call it the great tug-of-war. Fraudsters are teaming up to form elaborate rings that work in sync to launch account takeovers. Chris Tremont, EVP at Radius Bank, tells PYMNTS that financial institutions (FIs) can beat such highly organized fraudsters at their own game. In the July 2020 Preventing Financial Crimes Playbook, Tremont lays out how.