Capital spending at U.S. companies from Apple Inc. to 3M Co. isat the highest level since 2008 as upgrades to plants, property andequipment show some executives embracing the likelihood that theeconomy averts recession.

Expenditures rose 24 percent to $43.3 billion in the thirdquarter for 140 non-financial companies in the Standard &Poor's 500 that had released such data as of Nov. 4. Starting withAlcoa Inc.'s earnings report on Oct. 11, spending last quarter wasthe most since the end of 2010. Year-to-date investments of $149billion are the highest since 2008, the analysis shows.

Corporate investment in equipment and software climbed at a 17.4percent annual pace in the third quarter, and earnings per sharefor S&P 500 companies have jumped 16 percent so far. Whileeconomic growth is slow, it's enough to spur investment, saidFrederic Dickson, who helps oversee $28 billion as chief marketstrategist for D.A. Davidson & Co. in Lake Oswego, Oregon.

“A lot of companies postponed upgrading facilities, hardware andtechnology given the fact they were fearing the economy would goback into recession,” Dickson said. “Now that they feel morecomfortable the economy has skated around recession, they're makingnecessary expenditures.”

U.S. gross domestic product rose at a 2.5 percent rate lastquarter to $13.35 trillion, topping for the first time the peak of$13.33 trillion in the last three months of 2007. Expectations arefor further expansion, and for inflation, which would make it morecostly to sit on cash, said Michael Gayed, chief investmentstrategist with Pension Partners LLC.

“It's indicative of some kind of an expectation of a rebound ofsorts going on in the next one to two years,” said Gayed, whose NewYork-based company oversees about $140 million.

Apple more than doubled expenditures to $1.6 billion in thethird quarter from a year earlier, International Business MachinesCorp. boosted spending 55 percent to $1.3 billion, while DiamondOffshore Drilling Inc. invested $543 million, an almost sixfoldincrease.

Annual capital spending for S&P 500 companies had tumbled asa result of the recession that began in December 2007 and ended inJune 2009. The $149 billion in expenditures so far this year forthe 140 companies screened, surpasses the $146 billion that thesame companies spent last year and is just short of the $169billion peak for 2008.

Apple's spending began rising faster than sales this year afterit had tracked sales growth for years, Ben Reitzes, a NewYork-based analyst with Barclays PLC, said in a Nov. 2 report. Thestepped-up investment at Cupertino, California-based Apple, theworld's second-biggest maker of smartphones, “illustrates someApple optimism on prospects over the long term,” he said.

Economic Headwinds

Spending by companies is still unlikely to surpass the 2008 peakuntil consumer demand shows clear signs of recovery, said RyanWang, an economist with HSBC Holdings Plc in New York, who predictsGDP growth of 1.8 percent for this year and next.

“There still are a lot of headwinds for the consumer,” Wangsaid. “That's going to keep growth moderate.”

Consumer purchases increased 0.6 percent in September, helpingpropel the world's largest economy through the third quarter whilepolicy makers moved to spur growth and hiring. Without a pickup inincomes, which rose 0.1 percent, households may be unable tomaintain spending. Consumer confidence also fell last week to itslowest level since the first quarter of 2009, the BloombergConsumer Comfort Index shows.

Companies in industries such as oil, gas and mining, includingDiamond and Halliburton Co., maintained spending during therecession, Wang said. Companies tied to home construction, such asChicago-based wallboard producer USG Corp., slashed spending andhave kept it at a minimum, he said.

IBM, the biggest computer-services provider, has spent to boostsales in business initiatives such as Smarter Planet, businessanalytics and cloud services, Chief Financial Officer MarkLoughridge said on an Oct. 17 conference call with analysts todiscuss third-quarter earnings. Sales have doubled this year forcloud services, increased 50 percent for Smarter Planet and risen20 percent for business analytics, he said.

“The investments we've made in key growth initiatives are payingoff and drove our revenue performance this quarter,” he said. Since2000, Armonk, New York-based IBM has made capital expenditures of$43 billion, according to the company's website.

3M is investing $1.3 billion to $1.5 billion a year, mostly ininternational markets, CFO David Meline said in a conference callwith analysts on Nov. 3. The St. Paul, Minnesota-based companywants to produce more in international markets that have highergrowth rates, he said. Spending on current businesses is a priorityover acquisitions because the investment generates return oncapital of more than 20 percent, he said.

Positive Sign

“We're in a cycle now where we're running with a capitalinvestment that's pretty strong,” Meline said. “That's primarilydriven by growth of our volume and activity in our internationalbusinesses as we localize more production.”

Companies may be boosting capital expenditures now before a taxbenefit from accelerated depreciation on investments ends inDecember unless extended by Congress, Wang of HSBC said.

“Companies have stated that part of their capital expendituresare indeed intended to take advantage of that accelerateddepreciation that's available,” Wang said.

The recovery in capital expenditures is still a step in theright direction, he said.

“It just says that final demand is growing so that's a positivesign and we'll have to see if it keeps going,” Wang said.

Bloomberg News

Copyright 2018 Bloomberg. All rightsreserved. This material may not be published, broadcast, rewritten,or redistributed.