fedgazette Roundup (2011-2015)

District businesses expect to increase capital spending in 2014

Toby Madden | Regional Economist

Published November 5, 2013

Capital spending is an important benchmark for the economy and its expected trajectory going forward. In the Ninth District, a recent survey suggests a positive outlook.

The Federal Reserve Bank of Minneapolis conducted an ad hoc survey of 153 Ninth District firms (see methodology) and asked them about capital spending plans. About half noted no change for 2014, but 31 percent expect capital spending to increase compared with 19 percent who expect decreases.

Financial and health services respondents are the most optimistic, with more than 40 percent anticipating capital expenditure increases next year. In contrast, 44 percent of manufacturers expect cuts in cap ex, while a third expect increases in 2014 over 2013.

Firms that are expanding capacity are most often facing capacity constraints. The most common reason given for expansion was that current capital equipment is not well suited to future needs (42 percent), followed by 40 percent who said current capacity is already stretched too thin. One-third of the positive respondents noted improved sales prospects. Respondents could choose more than one reason.

Of those who expect to cut capital expenditures, the most common reason cited (by about half of respondents) was reduced sales, while 31 percent mentioned cost increases as a limiting factor, and current excess capacity was blamed by 23 percent of the respondents. Again, respondents could choose more than one reason. Other reasons given were uncertainty in health care costs and government funding and a changing environment. Uncertainty about the future is curtailing capital spending now, according to 53 percent of respondents.

The number one issue respondents cited for why there is uncertainty is the strength of the overall recovery (73 percent) followed by uncertainties regarding health care reform (57 percent). Only 7 percent noted weakness abroad as an uncertainty issue. Examples given in written comments include interest rates, lack of political leadership and government policy.

Survey methodology:At 8 a.m. on Thursday, Oct. 31, an email was sent to 1,000 business contacts from various sectors around the Ninth District. By 4 p.m. Friday, Nov. 1, we received 153 responses, representing a 15 percent response rate. The largest number of respondents came from professional services (21 percent), financial services (18 percent), manufacturing (14 percent) and government (11 percent).