Company Spending Set to Surge

More purchases of capital goods and IT equipment should give the economy a boost.

Companies in the U.S. are beginning to empty their deep pockets and boost capital spending as they look past the specter of sequestration and global growth risks.

Orders for capital goods excluding aircraft and military equipment -- an indicator of future business investment -- increased 1.5 percent in May, a third consecutive advance and the longest streak since October 2011. Chief executive officers are more optimistic about the economy, based on the Business Roundtable’s quarterly outlook index, which rose to 84.3 in the second quarter, the highest in a year.

Tax Increases

Shulyatyeva projects capital expenditures will accelerate at a 6.9 percent annualized pace in the third quarter and 7.6 percent in the fourth after growing 4.4 percent in the three months ended June 30. The increase was only 0.1 percent in the first quarter, as federal budget cuts and tax increases weighed on the private sector.

Hoarding Funds

“A lot of these companies are sitting on lots of cash and trying to figure out what to do with it,” said Richard Gordon, a researcher of global IT-market forecasting for Gartner UK Ltd. in London.

Slowing Orders

Capital-goods orders slowed last year, declining 4.7 percent in December from a year earlier after rising 9.2 percent in the 12 months ended in January 2012. The outlook for 2013 is “okay, but not great,” with orders “trending along in the mid-single-digit range, which is not exceptional,” said Michael Carey, chief economist for North America at Credit Agricole CIB in New York and the top forecaster of GDP growth for the two years ended in May, according to data compiled by Bloomberg.

Home Affordability

Even as mortgage rates rise from record lows, the economy is less interest-rate-sensitive as households have repaired their balance sheets and home affordability has surged, said Ted Wieseman, an economist at Morgan Stanley in New York. The average for a 30-year fixed-rate mortgage was 4.51 percent in the week ended July 11, the highest in almost two years, compared with 3.31 percent in November, the lowest in records dating to 1972, according to data from Freddie Mac.

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