Mericle cautions the model “is subject to considerable uncertainty,” and changes in fiscal policy may also slow growth. Goldman forecasts spending on equipment and software will grow 7% this year, compared with a 6.9% gain in 2012, reflecting a pickup in the second half of the year.
Companies that don’t have the cash are finding it cheaper to borrow. Average yields for corporate bonds rated in S&P’s BBB tier, the lowest investment grade, fell to a record low of 3.281% in January and stood at 3.356% as of March 4, according to data from Bank of America Merrill Lynch.
Extra cash and low borrowing costs may be enough to spur spending even as lawmakers in Washington debate how to trim the federal budget deficit.
A total of $1.2 trillion in automatic across-the-board budget cuts over the next nine years were triggered on March 1 when Democrats and Republicans failed to reach a compromise.
Government spending authority expires on March 27 and the federal government would shut down absent another budget deal among lawmakers and President Barack Obama. Washington policy makers also will have to negotiate raising the debt ceiling by May 19, when the suspension to that limit ends.
Markets have looked past the impending government spending cuts. The Standard & Poor’s 500 Index advanced 6.5% this year through last week, better than the 4.1% gain for the MSCI All Country World Index. The U.S. Dollar Index, which tracks the currency against six of America’s biggest trading partners, was the highest since August.
The fiscal-policy hurdles also shouldn’t keep companies on the sidelines as the world’s largest economy recovers, Buffett, chairman and chief executive officer of Berkshire Hathaway, wrote in an annual letter to shareholders posted online March 1.
“There was a lot of hand-wringing last year among CEOs who cried ‘uncertainty’ when faced with capital allocation decisions despite many of their businesses having enjoyed record levels of both earnings and cash,” Buffett said in the letter. “We will keep our foot to the floor and will almost certainly set still another record for capital expenditures in 2013. Opportunities abound in America.”