Prospects: Will the Capital Equipment Spending Boom Continue?

Posted October 28, 2011 by CLeahey

[private]

• Capital spending on equipment has been very strong during this very tepid recovery.
• While the spending decline has been very deep relative to the past, the pace of the  ensuing recovery has only been close to average.  The current level of equipment spending only returned to its 2007 high last quarter.
• Firms have increasingly substituted relatively cheap capital for more expensive labor.  Capital spending of 6% to 8% per year would be enough to bring the capital labor ratio back to historical trends. 
• Large cash on hand, improving credit conditions, and increased issuance all support the notion that the boom could continue for some time.

Prospects-10-28-2011[/private]