Talk about an inflection point. Passage of the Tax Cuts and Jobs Act of 2017 in the U.S. has put more cash in companies’ coffers, and they have been ramping up spending on their businesses at the fastest pace in years. Capital expenditures — such as spending on factories, equipment and other capital goods — by S&P 500 companies totaled about US$167 billion in the first quarter, the fastest pace in seven years and a record for a year’s first quarter.

Higher spending on technology, equipment and facilities could ease worries that S&P 500 companies have reached a peak in their profit growth. The spending could also give the U.S. economy a fresh set of legs, and help extend an expansion now in its tenth year. In addition to capital spending, a solid jobs market, rising corporate profits and healthy industrial production point to the U.S. economy continuing to grow through this year and possibly beyond.

 

Technology companies are among the big spenders and big winners in the capital spending surge. Google topped the list for capital spending during the first quarter at US$7.3 billion, while Apple and Microsoft were among the top 10. They’re also benefiting from companies upgrading their technology infrastructure. Corporate spending on tech this year has reached its highest level since 2010.

 

Sources: Capital Group; U.S. Bureau of Economic Analysis; FactSet; International Monetary Fund, World Economic Outlook Database, April 2018; Thomson Reuters. Capital expenditures data is as of 3/31/18.