Schroders: Capex – still supporting economic growth?
To better understand the outlook for capex in the US, we examine a number of the leading and lagging indicators. Our analysis suggests that the outlook for capex is mixed and the anticipated revival may take longer to materialise.18.07.2014 | 16:03 Uhr
Much has been written of an impending pick up in capital expenditure (‘capex’). With companies holding historically high levels of cash on their balance sheets, the hope is that the unusually low levels of interest rates will encourage corporates to spend more in order to generate a higher return on their investment. Indeed, the global economy would welcome the potential boost to growth from an increase in corporate spending. Likewise, firms with business lines exposed to higher corporate spending are likely to see an uplift to their revenues and earnings.
To better understand the outlook for capex in the US, we examine a number of the leading and lagging indicators. Our analysis suggests that the outlook for capex is mixed and the anticipated revival may take longer to materialise. One of the lagging indicators we look at is the capex to sales ratio. Below, we show the ratios for US large and small companies represented by the S&P 500 and Russell 2000 indices respectively. Surprisingly, for smaller caps capex is above the long-term average while for larger caps it is in line with the average. This implies that for capex to increase from here the indicators would have to increase even further from their current high levels.