Business Spending Is Headed for Another Pinch-Penny Year

Capital spending is the lifeblood of corporate success, but the corpuscles have been flowing slowly lately. Don’t expect much improvement this year.

According to the Conference Board, corporate capital expenditure should inch along at a 1.0% growth rate in 2020, down from 2.3% last year and 6.4% in 2018. After this year, though, the research group believes that cap ex will pick up, along with the overall economy, which has been slowing the past couple of years amid weakness in the manufacturing sector.

The Conference Board anticipates that “the decline in industrial production to ease and eventually bottom out which should lead to improvements in business sentiment and bolster business investment.”

With the US economy growing at only slightly more than 2% post-recession—it expanded 2.3% last year—the appetite among companies to spend heavily on capital goods has been tempered. Certainly, capital spending has sprung back from a slump during the Great Recession, as well as a smaller downdraft amid the 2015-16 mini-recession, induced by a spectacular plunge in oil prices.

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Last year, though, cap ex (defined as nondefense capital goods orders excluding aircraft) has taken an erratic path. It was down in four of 2019’s months, with the last drop in December, of almost 1%.

Some of the 2019 trouble came from the General Motors strike and the grounding of the Boeing 737 MAX. Rising labor costs haven’t helped.

The good news is that GM is back to work again, although auto sales are weak worldwide, and the US-China trade war is called off, at least for the moment. At some point, the MAX should return to the air. As Boeing’s largest product, the ending of its production has hurt both the company and the economy.

Nevertheless, the Conference Board projects that consumer spending, which has been the sparkplug of the economy for several years, should soften in 2020 because of a decline in personal income growth. The organization’s report didn’t mention the coronavirus pandemic, which could really harm the global economy.

That said, a turnaround among emerging markets, if not in the developed world, could aid limping US industrial output, as well as the trade war truce.

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Tags: Boeing 737 MAX, Capital, Capital Expenditures, capital spending, Conference Board, Economy, Great Recession, Trade War

Dutch pension fund Stichting Pensioenfonds ABP, Europe’s largest pension fund with €466 billion ($514.6 billion) in assets, has unveiled a plan to cut its equity portfolio’s 2015 CO2 emissions levels by 40% by 2025, and become entirely “climate neutral” by 2050.

To help achieve its goals ABP will phase out investments in coal mines and tar sands, and said that within 10 years it will no longer be invested in coal for electricity producers in Organization for Economic Co-operation and Development (OECD) countries.

“We are sticking our neck out by setting goals for 2050 and 2030. With our previous sustainability plan, we did not dare to look further than five years,” Corien Wortmann-Kool, CEO of ABP, said in an interview with Dutch newspaper de Volkskrant. “So, this is not a five-year plan, but a 30-year plan. I think that makes us a real forerunner.”

Wortmann-Kool said the fund will provide an update on the progress of its plan in 2022 to “see if any tightening is required.”

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The fund sees three major transitions in the coming years that are crucial for companies to be able to create long-term value:

The need to transition to new energy generation and renewable energy sources.

Preservation of natural resources in connection with increasing scarcity of resources and food, and the need to deal with natural resources differently.

The digitization of society, in which technology is playing an increasingly important role.

ABP said that by 2050 the global economy must be climate neutral, and that energy must be affordable for everyone. To help achieve this goal, the fund said that it is reducing its investments in coal mines with sales of more than 30% and tar sands with sales of more than 20%. It is also establishing additional inclusion criteria to better assess companies’ climate change responses. It will invest €15 billion in sustainable and affordable energy, for example, through investments in green bonds.

ABP said that by 2025 it plans to invest more in companies with circular business models and other innovative solutions for food and raw material shortages. It will double its real estate investments that have a “green building certificate,” and establish criteria to assess companies for demonstrably more efficient, sustainable, and socially responsible use of natural resources.

Besides climate change, ABP will focus more on human rights.

“In 2050 all companies must demonstrably respect human rights,” said ABP. “We will be addressing companies more and more often about this. This means that companies must identify, prevent and address human rights risks.”

ABP does not invest in producers of weapons that are prohibited under international treaties signed by the Netherlands. This applies specifically to companies involved in making cluster bombs, land mines, and chemical and biological weapons. From 2019, ABP no longer invests in tobacco companies, and companies involved in the production of nuclear weapons. It also does not invest in government bonds of countries subject to a binding arms embargo from the European Union or UN Security Council.

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