U.S. manufacturers expect to reduce capital spending in 2020, a trend that could limit a rebound in the sector even as companies see profits improving.
Factory executives forecast capital expenditures will decrease 2.1% in 2020, which if realized would be the first annual decline in 11 years, according to a semiannual survey from the Institute for Supply Management released Monday. That compares to a reported increase of 6.4% in 2019. Managers at non-manufacturing firms expect a 1.3% rise next year, slower than 2019’s increase of 2%.
While the group’s monthly data show the manufacturing sector is currently contracting, the report indicates a turnaround may begin in the first half of 2020 and pick up later in the year. Factories remain in a fragile position after tumbling into recession earlier this year, though concerns have abated that the weakness will spread into the broader economy amid strong job gains.
Even so, companies across the economy have held off on long-term investments amid uncertain trade policies, escalating tariffs and a moderating growth outlook. The pullback weighed on economic growth in both the second and third quarters.
A plurality of companies, about 38%, cited domestic economic conditions as the main reason for adjusting capital-spending plans, while just 3% blamed tariffs. About 44% cited other unspecified factors.
At the same time, about a third of factory respondents expect profit margins to improve between now and May, while 21% expect lower margins and 46% predict no change. Revenue is expected to increase 4.8%.
The ISM declined to disclose the number of companies who responded to the survey beyond saying it’s the same panel for the monthly PMI reports. ISM asked respondents to report toward the end of November, research manager Kristina Cahill said.