Capital spending seen as a boost to manufacturing

Economist talks about re-investment as a key to economic growth at German-American Chamber event

02/10/2014


The outlook for the manufacturing economy in 2014 may depend on whether corporate leaders reach into their deep pockets for some capital investment, but there are visible signs that such a move could be on the horizon.

That was the conclusion of Adolfo Laurenti of Mesirow Financial at the Feb. 6 luncheon meeting of the German-American Chamber of Commerce of the Midwest in Rosemont, IL. More than 100 regional business leaders attended the presentation and conference, which highlighted German-American business cooperation and development.

It's been an uneven recovery, but a recovery nonetheless," Laurenti said. "We're getting to levels that are sustainable in the long term. "What as been lacking is business spending: investment in software, investment in infrastructure," he added. "The balance sheet for corporate America is healthy. If we see some firming in confidence, the resources will be there to pick up the pace of investment. We are on the verge for this to happen."

Laurenti cited four areas where there was good news for the U.S. economy heading into 2014:

1. An improving labor market, especially with unemployment falling to four-year lows

2. An improving housing market, which has strong implications for all kinds of manufacturing

3. Pent-up demand for capital spending

4. A change in the impact of government spending. Laurenti categorized past spending as a drag on the economy, but he said it now was at least a neutral factor on economic growth.

"Unemployment is down, and we have have seen steady improvement," Laurenti said. "Enough people [in] 2014 will see new jobs, and that will be good news for the economy. There's not much government can do to jump-start the economy, but if you have a government that will stop being a drag on the economy, you can remove some of the headwinds."

Despite the generally positive news, Laurenti cited some major challenges in the U.S. and global markets that could slow the recovery:

  • While interest rates are likely to stay close to 0% through 2015, yield could increase. That could lead to higher interest rates, which according to Laurenti, "Might be a challenge for the housing market."
  • He said that even with new jobs and a lower unemployment rate, "We do not have enough people joining the workforce. It will take some thinking out of the box."
  • European growth will return, but it will still lag behind other markets, including the U.S. Laurenti sees Eurozone growth at around 1% in 2014, with Germany's modest growth rate of 2% being offset by struggling nations, such as Italy, Spain, and France, which Laurenti said is the latest European Union member with a public finance crisis.
  • There are still some problems in the banking sector, which makes loans for capital projects an issue to watch. "The credit crunch has been massive, and some damage will last a little longer," Laurenti said.


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