Business Capital Spending Strong

Order for business capital goods strengthened last month.  The aircraft sector had another great month, but everyday equipment also gained.

The arguments for expansion of business capital spending are twofold.  First, many industries are running short of capacity.  For instance, a recent article in the International Herald Tribune talked about the mining industry’s tire shortage.  The economy is strong, so demand for minerals is up, so demand for tires for mining trucks is up.  Such capacity shortages, added to routine opportunities to lower costs through more and better equipment, fuels the current spending on business equipment.  Second, business balance sheets are strong.  Corporate profits are up, and debt-equity ratios are down, so companies have the capacity to spend more.

Business Strategy Implications: Companies selling capital equipment should plan for increased sales.  Businesses considering expansion should talk to their equipment vendors NOW, because lead times are longer than normal for many types of gear.  Good luck.