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Economic Forecasts

Business Spending to Break Out of Stall in 2017

Kiplinger's latest forecast on business equipment spending

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GDP 2.1% growth in ’17, following 1.6% in ’16 More »
Jobs Hiring pace should slow to 160K/month in '17 More »
Interest rates 10-year T-notes at 3% by end '17 More »
Inflation 2.5% in '17, up from 2.1% in '16 More »
Business spending Rising 3%-4% in ’17, after flat ’16 More »
Energy Crude oil trading from $55 to $60 per barrel in May More »
Housing Single-family starts up 10% in '17 More »
Retail sales Growing 4.2% in '17 (excluding gas) More »
Trade deficit Widening 4% in '17, after nearly flat '16 More »

A modest recovery is taking shape in U.S. manufacturing after two years of virtual stagnation. Business spending on long-lasting durable goods like machinery, computers and fabricated metal products is beginning to rise, as the impact of a strong dollar on overseas sales eases and overstocked inventories are drawn down. Firmer global growth and stabilization of energy prices are bolstering the industrial side of the economy. Also, anticipation of the increased infrastructure spending promised by the Trump administration is adding hope for a bigger pickup in investment later this year and into 2018.

It’s no investment boom, but a 3% to 4% increase in overall business spending this year will look good after a flat 2016. Still, there’s a good deal of uncertainty about domestic policies, including the administration’s plans for tax reform, that may have a bearing on companies’ willingness to commit to new spending on plant and equipment. Also, Europe faces a trio of elections this year (in the Netherlands, France and Germany) that have potential implications for the continent’s economic growth and for the relative values of the dollar and euro, should populist movements make strong gains. Conservative movements in the Netherlands and France, for example, question the value of European Union membership and could lead to further fracturing of the bloc if they succeed in gaining power.

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Order bookings for nonmilitary equipment excluding aircraft dipped 0.4% in January, but that followed two back-to-back months of solid gains. Orders for these so-called core capital goods have exceeded shipments of finished products for seven straight months, an indication of solid if unspectacular progress in refilling the orders pipeline.

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Overall orders for durable goods including commercial aircraft, cars, trucks and parts gained in January. Defense orders climbed sharply and may benefit down the road from a planned buildup in military spending under President Trump. Another area where capital spending prospects are brightening is equipment used by the oil and gas industry — everything from pumps to drilling equipment — as firmer energy prices spur interest in exploration.

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