Growth Strategies

U.S. Capex Seen Falling By 11%

Among S&P 500 sectors, only the materials and financials sectors expect to spend more in 2015 than they did last year.
Matthew HellerMay 14, 2015

Capital spending by U.S. companies could fall this year to its lowest level since 2011, indicating corporate bosses are less confident about the economy than they have been in recent years, according to Reuters.

Both a Thomson Reuters analysis of spending outlooks from 255 S&P 500 companies and analyst projections for all S&P 500 companies point to a capital expenditure downturn that would break the recent trend of increased capital spending every year since at least 2009.

“They’re not spending at a pace that would suggest a global recovery,” Peter Cardillo, chief market economist at Rockwell Global Capital in New York, told Reuters.

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According to the Thomson Reuters analysis, total spending from 255 S&P 500 companies is projected at $410.2 billion this year, down nearly 11% from actual spending by those same firms of $459.2 billion in 2014. Among the S&P sectors, only the materials and financials sectors expect to spend more in 2015 than they did in 2014.

Analyst estimates show total S&P 500 capex spending could dip 11% to $641.6 billion in 2015 from actual 2014 spending of $718.1 billion, marking the lowest level since 2011’s $591.5 billion.

The projected numbers reflect steep capex cuts by the energy industry and reductions by companies in other sectors amid broad concerns about global growth. The energy sector’s capex projections are down by $21.4 billion, or 14.1%, from a year ago. U.S. oil prices have fallen more than 43% since mid-June of last year.

“This could go on into 2016, barring a meaningful recovery in the oil price. I think the trend continues for lower capital spending,” Fadel Gheit, managing director and senior analyst at Oppenheimer & Co., told Reuters.

According to a recent Moody’s Investors Service report, U.S. nonfinancial corporations held a record $1.73 million in cash at the end of 2014. But spending on buybacks and dividend payments has come at the expense of capex for many companies.

“Companies have been more interested in share buybacks than capex,” said Quincy Krosby, market strategist at Prudential Financial.