U.S. capital spending down in 2009

Capital spending in the U.S. fell dramatically in 2009, reaching a five-year low with the manufacturing and information sectors seeing the largest declines, according to a recent report from the U.S. Census Bureau’s Annual Capital Expenditures Survey.

The report, which does not include breakdowns by state, shows that spending on new and used “structures and equipment” during 2009 totaled $1.09 trillion, or $284.1 billion below the 2008 level. (See chart below.)

“Between 2000 and 2009, the period covered by this report, capital spending by U.S.
nonfarm businesses varied cyclically,” according to the Census report. “Spending totaled $1,161.0 billion in 2000, then fell each year reaching lows of $997.9 billion in 2002 and $975.0 billion in 2003. Spending increased in 2004 and each successive year through 2007. Spending in 2008 was not statistically different from 2007, and spending fell in 2009.”

An April 2010 report from the World Bank said part of the slowdown in capital spending was due to “very weak bank lending.” The same report noted that capital expenditures were up in early 2010 and would continue to rise based on gains in corporate profits.

Sectors with the largest gains in capital spending during 2009 were mining (up $58.7 billion, or 138%), utilities ($40.5 billion, or 66.1%) and health care (up $27.2 billion, or 52.1%). Sectors with the largest declines during 2009 were information (down $72.5 billion, or 45.3%) and manufacturing (down $59 billion, or 27.5%).

However, manufacturing represented the largest portion (15.4%) of overall capital spending in 2009. Mining and utilities represented 10% each and finance and insurance was next with 9.8%.

“Between 2000 and 2009, investment spending in the manufacturing sector declined from $214.8 billion to $155.8 billion,” the Census report noted. “This $59.0 billion decline was the second largest of all sectors. In addition, the sector’s share of total investment spending decreased from 19.7 percent to 15.4 percent.”

It’s possible the manufacturing sector will see gains in 2010 and 2011.

New orders for durable goods began to increase in mid 2009, and have held steady with double-digit year-over-year percentage increases through 2010 and into 2011. However, durable goods orders did begin to decline in April 2011, with some of the decline related to lower orders for large aircraft and supply disruptions in the automaker sector.

“Indeed, the manufacturing sector has been at the forefront of the recovery in the US, and ISM’s latest Manufacturing Business Survey points to continued strong expansion in the sector supported,” noted this World Bank post. “The expansion in the sector is benefitting from growing exports in part due to a weaker dollar, but also due to rising US consumer spending and equipment spending by US companies, however higher input prices are squeezing profits.”

Link here for a PDF of the Census Bureau report on capital spending.