Cash Hoards Lend Thrust to U.S. Capital Investment

Capital spending begins to accelerate, as U.S. businesses spend down cash reserves and take advantage of easing credit.

Capital spending is poised to accelerate, giving the U.S. economic expansion a fresh boost after investment lagged way behind the half-century average.

Goldman Sachs Group Inc. economists said their “capex tracker” of 15 indicators, such as loan demand and capital-goods orders, shows a speed-up in nonresidential spending may already have begun. They see such investment climbing in 2014 by 7.5 percent, more than twice the forecast for 2013. Economist Joe Carson of AllianceBernstein LP predicts a broad-based surge with staying power.

Energy-related exploration and infrastructure investment will feed off the oil-production boom in North Dakota and Texas and the rise of hydraulic fracturing for natural gas. Diamondback Energy Inc. plans to drill 65 to 75 horizontal wells in 2014, at an average cost of $6.9 million to $7.4 million each, as it doubles production. Its capital spending will jump to $425 million to $475 million, up about 48 percent from this year’s projected level, the Midland, Texas-based company said Oct. 23.

Energy and automotive demand is rippling through to industries including steelmaking, driving earnings at companies such as Nucor. U.S. steel plants were running at an average 78 percent of capacity in the third quarter, up from 75 percent a year earlier, American Iron and Steel Institute data showed. Increased capacity utilization can be a prelude to fresh investment.

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