Business spending outlook improves as U.S. profits grow

‘Investment Boomlet’

Swonk projects investment will pick up in the second half of 2013 as companies put excess cash to work, banks make it easier to borrow, the housing and automobile industries reach “tipping points” where plants need to be expanded, U.S. energy production grows and technological innovations fuel new investments, she said in a Feb. 13 report that made the case for an “investment boomlet.”

Lowe’s, the second-largest U.S. home-improvement retailer, is boosting spending on store upgrades and hiring. It plans to open 10 stores in 2013, the Mooresville, North Carolina-based company said on a Feb. 25 earnings call.

The “drivers of industry growth, mainly job gains and stable to growing housing, should support a strengthening growth trajectory for the industry,” Chief Executive Officer Robert Niblock said on a Feb. 25 earnings call with analysts. “The macroeconomic transition from recovery to sustainable expansion, together with our initiatives and improving operational collaboration, give us confidence in our business outlook for 2013.”

Profit from companies in the Standard & Poor’s 500 Index will exceed $120 a share by next year, double the level in 2008, according to Wall Street estimates. That’s the biggest increase since the 142% gain during the rally in technology stocks from 1993 to 1999.

Using Cash

Forty-eight% of investors reported that capital expenditures are the best use of corporate cash -- the highest reading since April 2011, according to a survey conducted last month by Bank of America Merrill Lynch.

“We see the continued elevated level of corporate profits as the clearest tailwind for investment growth this year,” David Mericle, an economist at Goldman Sachs Group Inc. in New York, wrote in a Feb. 15 research report.

Economists at Goldman incorporate profits, consumer spending, equity prices, banks’ willingness to lend, capacity use and the growth rate of the capital stock in a model used to project business investment. The most recent results point to about a 10% gain in business investment over the next year, enough to lift GDP by one percentage point, according to Mericle’s report.

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