U.S. companies are preparing to invest again after years on the sidelines, and rising interest rates are unlikely to impede them. Executives have grown more optimistic about growth, in part anticipating that President-elect Donald Trump’s administration and Republican congressional majorities will bring regulatory rollbacks, corporate tax breaks and increased infrastructure spending.
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… recently, [GameStop] company has shifted tactics. GameStop has boosted capital spending to roughly $160 million in 2016 from $125 million in 2013 for store refurbishments and expansion into new categories like collectibles. Last year, it cut its buyback in half.
Steel company Klöckner & Co., which generates about 40% of its sales from its 50 sites in the U.S., expects to increase spending on steel-shaping machinery here in the coming year. The German company delayed such U.S. investments when demand slowed from industrial customers that make everything from railcars to storage tanks for oil producers.
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Companies saw little reason to invest when U.S. economic growth was sluggish. Quarterly gross domestic product has averaged an annualized 1.5% growth since the Lehman collapse, compared with a decadeslong average–going back to 1930–of more than 3%.
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Another culprit was a resistance among corporate leaders to lower the minimum rate of return on investment–known as a hurdle rate–they would accept from new spending, largely out of fear of disappointing shareholders… “Businesses simply haven’t adjusted to a world of low interest rates,” said Paul Ashworth, chief North American economist for Capital Economics Ltd., a research firm. “They’re still looking for 5% or 6% returns, or 10% returns, on investment projects, and not realizing the cost of borrowing is actually much lower.”
Well this seems like a whole lot of hopium to us — the economy isn’t on the verge of taking off, it’s more likely on the verge of a renewed downturn…