(Bloomberg) — Capital spending by US manufacturers will probably cool in 2024 after a banner year of investment in plants as still-elevated borrowing costs and demand concerns temper a lingering desire to upgrade operations.
Purchasing and supply executives expect outlays to increase almost 12% this year after rising by nearly 15% in 2023, according to the Institute for Supply Management’s latest semiannual economic forecast. While factories are dialing back the pace of investment, S&P Global Market Intelligence sees spending in the sector still climbing $54 billion after an estimated $50.6 billion last year.
Investment by manufacturers in plants and other production facilities surged almost 63% in 2023, the largest annual advance since 1951, according to the government’s latest report on gross domestic product. The increase has its roots in companies taking advantage of federal incentives and making up for deferred spending during the pandemic when supply chains were in disarray.
Producers are reshoring production, plus they’re upgrading technology and pursuing productivity-enhancing technologies such as automation and artificial intelligence, said Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee.
Yet economists project overall US economic growth to slow this year — averaging 1.5% compared with 2.5% in 2023, according to the latest Bloomberg monthly survey.
Along with that cooldown, growth in capital outlays is unlikely to match last year’s pace. Burdened by softer orders against a backdrop of tepid overseas demand and a domestic-spending shift toward services, manufacturing has struggled for traction.
A report from the Federal Reserve Bank of New York showed factory activity in the state at the start of 2024 dropped to the lowest level since May 2020, while the Institute for Supply Management’s broader measure of manufacturing across the US has been in contraction for more than a year.
“Companies are just very cautious going into 2024,” said Bloomberg Economics’ Eliza Winger. “Companies are really worried about tightening credit conditions even further going forward.”
A fourth-quarter survey of National Association of Manufacturers members showed that capital expenditures are expected to grow 0.6% during the next 12 months. Excluding the aftermath of the pandemic, that projection is the weakest since the second quarter of 2016.
“Because there is uncertainty there, I think that there is just some caution when it comes to overall spending and capex plans for the year,” said Chad Moutray, NAM’s chief economist.
Private investment, which includes business spending, inventories and residential outlays, is projected to grow about 1.7% on average this year, based on the monthly Bloomberg survey. In 2023, nonresidential fixed investment alone increased 4.4%, helped by federal incentives.
At the same time, the long-term strategy of reshoring of production — particularly on goods deemed essential for national security — and expectations the Fed will reduce interest rates this year will prevent an outright retrenchment capital goods expenditures.
One key reason investment has been so sturdy is government incentives. Part of the legislation championed by President Joe Biden provides subsidies, tax credits and other incentives to spur the building of computer-chip fabrication plants and production of electric vehicles, batteries and components.
Companies have also come to accept the advantages of reshoring to make their operations more resilient and less susceptible to conflict and disruptions overseas, said Chris Snyder, executive director of industrials equity research for UBS.
During the past two years, the US has attracted 24% of global foreign direct investment and is now attracting capital at a rate not seen since the 1990s, according to a UBS analysis.
“The last two to three years coming out of the pandemic, we saw what the true cost of outsourcing and the true risk of outsourcing was,” Snyder said.
Moreover, the Fed is expected to cut interest rates this year after the most aggressive tightening cycle in a generation, which will help spur investment, said John Coykendall, vice chair of Deloitte LLP and leader of its US Industrial Products & Construction practice.
Coykendall said there’s as much money being invested to make existing factories more efficient and more automated with new equipment and technology as there is in new facilities.
A survey by Deloitte and the Manufacturing Leadership Council last year found that 92% are experimenting with or implementing industrial metaverse and artificial intelligence investments, and almost four in 10 organizations plan “substantial growth” in their use of metaverse technologies.
When business leaders in a Manufacturing Institute survey last year were asked how they would spend an extra $1 million, 62% said that they would invest in new equipment. Additional areas of focus for investment included optimizing existing equipment and updating existing facilities.
NEW YORK (AP) — Shares of Tesla soared Wednesday as investors bet that the electric vehicle maker and its CEO Elon Musk will benefit from Donald Trump’s return to the White House.
Tesla stands to make significant gains under a Trump administration with the threat of diminished subsidies for alternative energy and electric vehicles doing the most harm to smaller competitors. Trump’s plans for extensive tariffs on Chinese imports make it less likely that Chinese EVs will be sold in bulk in the U.S. anytime soon.
“Tesla has the scale and scope that is unmatched,” said Wedbush analyst Dan Ives, in a note to investors. “This dynamic could give Musk and Tesla a clear competitive advantage in a non-EV subsidy environment, coupled by likely higher China tariffs that would continue to push away cheaper Chinese EV players.”
Tesla shares jumped 14.8% Wednesday while shares of rival electric vehicle makers tumbled. Nio, based in Shanghai, fell 5.3%. Shares of electric truck maker Rivian dropped 8.3% and Lucid Group fell 5.3%.
Tesla dominates sales of electric vehicles in the U.S, with 48.9% in market share through the middle of 2024, according to the U.S. Energy Information Administration.
Subsidies for clean energy are part of the Inflation Reduction Act, signed into law by President Joe Biden in 2022. It included tax credits for manufacturing, along with tax credits for consumers of electric vehicles.
Musk was one of Trump’s biggest donors, spending at least $119 million mobilizing Trump’s supporters to back the Republican nominee. He also pledged to give away $1 million a day to voters signing a petition for his political action committee.
In some ways, it has been a rocky year for Tesla, with sales and profit declining through the first half of the year. Profit did rise 17.3% in the third quarter.
The U.S. opened an investigation into the company’s “Full Self-Driving” system after reports of crashes in low-visibility conditions, including one that killed a pedestrian. The investigation covers roughly 2.4 million Teslas from the 2016 through 2024 model years.
And investors sent company shares tumbling last month after Tesla unveiled its long-awaited robotaxi at a Hollywood studio Thursday night, seeing not much progress at Tesla on autonomous vehicles while other companies have been making notable progress.
TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.
The S&P/TSX composite index was up 103.40 points at 24,542.48.
In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.
The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.
The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.
The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.
This report by The Canadian Press was first published Oct. 16, 2024.
TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.
The S&P/TSX composite index was up 205.86 points at 24,508.12.
In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.
The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.
The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.
The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.
This report by The Canadian Press was first published Oct. 11, 2024.
