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TEXT-Fitch: U.S. data suggest little pick-up in corporate capex
March 1, 2012 / 7:56 PM / 6 years ago

TEXT-Fitch: U.S. data suggest little pick-up in corporate capex

 (The following statement was released by the rating agency)	
 March 1 - Data released this week on U.S. manufacturing activity and
new orders point to a continuation of a slow-growth scenario for corporate
capital spending in 2012. Recognizing some signs of slowing manufacturing growth
in January and February, Fitch expects U.S. corporate capex, particularly when
excluding energy investment, to show little or no growth this year.	
A monthly decline in the Institute for Supply Management's (ISM) purchasing 	
management index (52.4 in February versus 54.1 in January) points to continuing 	
caution among manufacturers regarding the outlook for global demand growth later	
in the year. The ISM data follow similarly soft numbers on January durable goods	
orders released by the Commerce Department on Feb. 28.	
Some of the reported weakness in new orders, linked to slow expansion in demand 	
in segments such as capital goods and machinery, may reflect increasing concerns	
over a surge in energy prices seen since the beginning of the year, as well as 	
ongoing caution over the depressed industrial demand picture in Europe. 	
Corporate capex growth will likely remain weak should the recent energy price 	
move dampen household and business confidence further in 2012.	
We noted in a December 2011 special report that 2012 capex for a broad group of 	
Fitch-rated issuers was likely to decline by 2.2% versus 2011. In part, the 	
drop-off in spending probably reflects the expiration of bonus depreciation for 	
new capital equipment at the end of 2011 and the pull forward of certain capex 	
into fourth-quarter 2011. However, softness in the first quarter may also 	
reflect a scaling back of global growth expectations by many large industrial 	
ISM survey respondents in the manufacturing sector indicated that new order 	
activity had weakened somewhat in February. The new orders index declined by 2.7	
percentage points to 54.9 last month. 	
In addition, rising commodity prices pushed the manufacturers' materials cost 	
index up by 6 percentage points in the month. U.S. manufacturers are reporting 	
material cost pressure in such critical commodities as aluminum, steel, fuel 	
oil, and ethylene. Natural gas was the only commodity input showing a price 	
decrease in the February survey.	
Some sectors are clearly reporting a YTD improvement in demand in spite of the 	
slow-growth macro environment. Auto manufacturing activity, and associated 	
demand for fabricated metal products, is out-pacing growth in other industrial 	
Energy sector spending, which drives approximately 30% of U.S. corporate capex, 	
may also show signs of strength this year if global oil prices remain high and 	
strong investment in North American shale gas development and production 	
continue to surge.	
Given the rising importance of emerging markets as drivers of corporate capex, 	
we expect 2012 spending levels to be highly sensitive to emerging market growth 	
rates. With parts of emerging Europe reporting weak economic conditions, and in 	
light of slowing growth rates in Asia and Latin America, emerging market demand 	
may drag capex down, even as modest growth continues in the U.S.	
For additional detail on our 2012 corporate capital spending expectations, based	
on a survey of 324 companies, see "U.S. Corporate Capital Expenditure Study: 	
2011 Surge Not Maintained," dated Dec. 7, 2011, at 	
The above article originally appeared as a post on the Fitch Wire credit market 	
commentary page. The original article can be accessed at 	
All opinions expressed are those of Fitch Ratings.	
Applicable Criteria and Related Research: 	
U.S. Corporate Capital Expenditure Study: 2011 Surge Not Maintained	
 (New York Ratings Team)	

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