Companies are expected to decrease their capital spending in 2023, due to growing fears of a recession and an overall economic downturn, according to The Wall Street Journal (subscription).
The outlook: As forecasts for 2023 continue to predict an economic downturn, companies are slowing down their spending on capital, including property, equipment and technology investments. Multiple companies that expanded during the pandemic are cutting down 2023 investments by millions, such as FedEx Corporation (reducing capital spending by $400 million) and CarMax, Inc. (reducing by $50 million).
The trend: During the first year of the pandemic, many companies utilized low interest rates and available, unused money for increased capital investments. In 2021, capital expenditures grew by almost 10%, and in 2022, they grew by 20%. Experts predict this kind of growth to increase in 2023 by only 6%.
The why: Multiple global factors are contributing to this reduction, including the increase of interest rates, inflation and the war in Ukraine. Specific companies are also dealing with less demand than they saw earlier in the pandemic. For example, FedEx has much weaker demand for their mailing services, and CarMax is suffering from rising rates that make buying a car unrealistic for many prospective customers.
- “Approximately 30% of CFOs plan to reduce planned capital spending due to higher interest rates, according to a survey from Duke University’s Fuqua School of Business and the Federal Reserve Banks of Richmond and Atlanta.”
The outliers: There are some exceptions to this trend, with certain companies that are now benefitting from the current state of the economy increasing their capital investments. One example is Conagra Brands Inc., a Chicago-based food manufacturer, which has completed the building of brand-new facilities recently and is working on investing in new facility technology.