Capital expenditure among US manufacturers is unlikely to witness the anticipated post-election surge, primarily due to the uncertainties about the economic policies that President-elect Donald Trump will enact once he assumes office in January.
Recent surveys suggest modest growth in capital spending within the manufacturing sector for the coming year, contrasting the expected increases many were hopeful for after the election’s outcome and the Federal Reserve’s decision to start lowering interest rates.
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A survey carried out in the fourth quarter among the members of the National Association of Manufacturers showed that, on average, respondents project capital investments to rise by only 1.6% over the next 12 months, an increase from 0.7% in the third quarter, prior to the presidential election.
“That’s not particularly strong, but it also reflects the current policy landscape,” remarked Jay Timmons, the association’s president and CEO. He indicated that spending could see a more substantial rise if Congress quickly passes a bill to extend the expiring tax cuts from 2017 and introduce other beneficial tax initiatives.
If this happens in the first quarter, spending could experience a “fairly dramatic” uplift, and optimism about investments in the US would rise, Timmons elaborated during an interview at Bloomberg’s Washington office. Conversely, if legislative action is delayed until later in the year, potential investment decisions could also be postponed.
The magnitude of capital expenditures by manufacturers in 2025 will depend on the timing of the tax legislation and whether companies can take advantage of provisions for immediate deductions on costs related to equipment and facilities, similar to the effects of the 2017 tax reform, according to Scott Paul, president of the Alliance for American Manufacturing.
The Institute for Supply Management’s Supply Chain Planning Forecast, released this week, suggests that the anticipated increase in manufacturing capital expenditures will be smaller in 2025 compared to 2024, a year in which spending was limited by high-interest rates.
This cautious outlook is influenced by concerns that Trump’s threats of imposing extensive tariffs could reignite inflation and disrupt supply chains, as noted by Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee. There is also ambiguity surrounding the specific tariffs Trump may implement, given that he has indicated using tariff threats as a bargaining tactic.
Interest rates
Federal Reserve Chair Jerome Powell stated during a Wednesday press conference following the central bank’s latest decision that predicting the inflationary risks associated with tariffs is difficult without knowing the exact trade policies that will be instituted. He suggested that some officials might have adjusted their outlook for fewer rate cuts in the coming year, anticipating inflationary pressures due to the actions of the Trump administration.
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“We don’t know what goods will be tariffed, from which countries, the duration, or the extent,” Powell explained. “We are unsure whether there will be retaliatory tariffs, nor do we completely understand how any of this will impact consumer prices.”
Some economists contend that Trump’s pledge to enforce mass deportation of undocumented immigrants could also deprive the manufacturing sector and other industries of essential labor.
The heightened uncertainty regarding Trump’s potential actions “will deter manufacturers from investing in additional capacity until there is greater clarity on policy,” stated Samuel Tombs, chief US economist at Pantheon Macroeconomics, in a recent note.
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