Another Economic Plus Sign: Small Business Capital Spending

Small business is shelling out more in capital spending and plans to commit even more, a bellwether survey reports—a further good sign for the economy.

The National Federation of Independent Business (NFIB) capital expenditures index rose to an all-time high in August, and the intentions for future spending jumped three percentage points from the month before.

Accompanied by a surge in small business optimism, also captured by the survey, this demonstrates that the current booming economy should keep barreling along for the time being.

For businesses overall, large and small, capex is burgeoning. It grew 7.2% in the year’s second quarter, according to the US Bureau of Economic Analysis. For 2018’s first period, it was 11.5%. That’s up from 5.3% for all of last year, and a big gain from 2016’s 0.5% and 2015’s 1.8%.

The federal tax cuts passed at the end of last year could well be a factor. The corporate tax was lopped to 21% from 35%. But Ian Shepherdson, chief economist at Pantheon Macroeconomics, pointed out that the capex increases began picking up in mid-2016, long before it was clear that Republicans would control both Congress and the White House. Steadily expanding corporate earnings makes him even more sanguine, he wrote in a research note.

If a downside exists, Shepherdson said, it’s that domestic makers of capital equipment likely won’t be able to keep up with demand. So US companies will turn to overseas suppliers, pushing up the trade deficit. And a record 25% of respondents in the NFIB survey said their biggest problem was finding qualified labor.