Large Firms Cutting Back On Capital Spending

Date: February 11, 2016

Strong Dollar, Weak Global Demand Foster Economic Uncertainty

The Wall Street Journal reported that a number of large companies have cut back on capital spending plans over concerns about manufacturing sector weakness, which is beginning to surface in metrics of non-manufacturing sector growth was well. Executives at a number of large firms, such as Norfolk Southern Corp. and Chevron Corp. see the strong dollar and slowing economies abroad as reason for growing caution about growth prospects in the near term. In a recent speech to investors, Norfolk Southern CEO James Squires said, “We know this is a tough environment in which to talk about growth. That’s why we are so focused on cost reductions.” In addition, stock market volatility and weaker than expected growth in the US have left US investors and consumers unsettled. The Journal reported that analysts see mixed messages from consumers in the US, as retail sales and consumer spending reports disappoint, even as some companies post strong domestic sales results. Deutsche Bank Research economist Joseph LaVorgna said, “The US is basically relying on one sector to generate most of the growth, which is consumer. When you don’t have breadth, you’re vulnerable to a shock.”

What This Means For Small Business

That large firms are pulling back on capital investment plans is another indication of economic uncertainty that has weighed heavily on the minds of small business owners. Interestingly, NFIB said in its latest report on small business economic trends that the percentage of small firms planning capital purchases in the next two quarters actually rose by 1 point to 26 percent, which is partly explained by Congress’ action to make the Section 179 deduction for capital expenditures permanent.

Additional Reading

NFIB recently reported on the sluggish trends in manufacturing.

Note: this article is intended to keep small business owners up on the latest news. It does not necessarily represent the policy stances of NFIB.

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