Chart of the Week: Capital Spending Turn Around

The passing of the Tax Cuts and Jobs Act (TCJA) elicited a wide range of responses from Americans, particularly when it comes to the changes to the corporate tax code.

While American corporations should benefit in the near-term from lower income tax rates and favorable terms on the repatriation of cash held overseas, the long-term impact is less certain. One factor that will determine the long-term benefit of the bill, is what corporations decide to do with the cash that they repatriate from overseas. If corporations decide to return cash to shareholders via dividends and buybacks or pay down debt, the impact is anticipated to be short lived. However, if businesses use the cash to invest in their businesses via capital expenditures and increased hiring, this should stimulate economic activity and could lead to stronger growth long-term.

Although the TCJA is still relatively new, the chart above indicates that, on an estimated basis, capital expenditures should see a significant jump in 2018 – up over 20% from 2017. This is a great early sign that businesses are using the TCJA to invest in their business and, hopefully, have a long-term positive impact on the economy.