Economy

US Firms Slash Planned Expenses As Confidence Dips

Fears over the United States/China trade war and slowing global growth are causing many U.S. companies to cut down their plans for spending.

Citi analysts revealed that capital expenditure (capex), which is often used to gauge future profits, is expected to grow 3.5 percent this year, down from the 4.2 percent that was projected only four months ago, according to a report by the Financial Times. Last year, it got an 11 percent boost after the President Donald Trump administration’s corporate tax cuts.

The revisions are the result of the spending plans of 714 listed U.S. companies, excluding financial groups. While spending is set to expand, the lower levels have left investors worried that businesses are becoming overly cautious over fears of an impending economic downturn.

“Capex has been one of the biggest concerns about the state of the economy,” said Max Gokhman, head of asset allocation for Pacific Life Fund Advisors, according to FT. “This year we’re seeing uncertainty hurt capex — it has continued to dwindle.”

Technology hardware companies are dealing with a slowing growth outlook, as well as trade tariffs with China. In fact, these companies are set to cut capex 8.7 percent, and last week, U.S. tech giant Cisco revealed a drop in orders for its networking equipment.

“Cisco is a great example — they got hit on China sales, but also companies are not upgrading their networks,” Gokhman said. “That is all contributing to the dearth of investment.”

The Citi data also found that industrial companies will boost capex 3.7 percent, down from 8.4 percent in May, while materials will spend 14 percent more, a downgrade from an estimated 26.2 percent four months ago.

The capex news supports other signs of slowing growth.

“Business confidence tends to impact corporate investment activity and hence the various factors affecting C-suite concerns like trade issues and overseas weakness appears to be influencing behavior,” said Tobias Levkovich, Citi’s chief U.S. equity strategist.

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