Economic Commentary

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THE CURRENT STATE OF CAPEX

Economic Commentary |

Business capital expenditures (capex) have grown solidly over the past two years after an oil-related contraction in 2015 and 2016.

Part of the turnaround has been a natural rebound from those two years of slowdown, but fiscal stimulus is also playing an increasingly important role. Tax and spending packages passed in late 2017 and early 2018 have provided the economy with a $350 billion windfall that has helped raise business confidence and boost firms’ earnings, leading them to focus more on investing in their businesses for future growth. Changes in tax laws have also allowed businesses to expense capital purchases, making them less expensive, and to bring their overseas profits back to the United States (known as repatriation), providing an additional lift to business spending. As a result, some measures of capex, manufacturing, and business confidence climbed to their highest levels of the business cycle in 2018.

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John Lynch Chief Investment Strategist, LPL Financial
Barry Gilbert, PhD, CFA Asset Allocation Strategist, LPL Financial