A Thomson Reuters analysis shows that for 2013, more Standard & Poor's 500 firms are forecasting capital expenditures that exceeded analysts' expectations than at any time in the past four years. Recent U.S. government data showed a rise in equipment and software spending in the final quarter of 2012.
If companies ratchet up spending, that could help unleash more hiring and extend the early-year rally in stocks, which tend to rise along with business spending.
"Once businesses start spending, that really means not only are they going to be buying goods, but they're going to be hiring Americans, and those things are really what's going to be the multiplier that helps to take this recovery and move it into greater expansion mode," said Burt White, managing director and chief investment officer at LPL Financial in Boston.
Not all the money will be spent on new projects, of course. And the spending plans announced so far are only slightly above last year's average. But they comfortably exceed the expectations of analysts, whose capex forecasts fell this year.
Part of the reason may have been the dire predictions about the "fiscal cliff" late last year when analysts were putting together their capex forecasts. At least some chief executives, including DuPont's , blamed uncertainty over U.S. government budget and tax policy for a reluctance to invest and hire.
"A number of companies said we're planning our budget cycle on worst-possible conditions," said Fred Dickson, chief market strategist, D.A. Davidson & Co. Lake Oswego, Oregon.
That companies have turned more optimistic than analysts heartens investors because it amounts to a vote of confidence in the U.S. economy, which has been hobbled by high unemployment and household debt, and now faces curbs in government spending.
Another sign of confidence is the recent flurry of merger and acquisition activity. The $173 billion in U.S. deals announced so far in 2013 is more than double the volume seen last year at this time, according to Thomson Reuters Deals Intelligence.
After the financial crisis began in 2007, companies slashed expenses and jobs, and they remained diligent about keeping costs down even as the economy exited recession in mid-2009.
Federal Reserve data shows non-financial U.S. companies had $1.7 trillion of liquid assets, or cash, on their books as of the end of the third quarter of 2012.
MOVING OFF THE SIDELINES
The U.S. economy grew at a 2.2 percent clip in 2012 and is expected to slow to 1.9 percent this year as higher payroll taxes and government spending cuts take a bigger bite. Yet even with the economic outlook cloudy, things seem to be changing.
Of the S&P 500 companies that have issued capex guidance so far in 2013, 66 percent have spending plans that exceed analysts' expectations, the Thomson Reuters analysis showed. That's up from 57 percent in 2012, 59 percent in 2011, 55 percent in 2010, and 40 percent in 2009.
Those that have issued guidance are expecting to spend $1.59 billion on average in 2013. While that's only a modest increase from the 2012 average of $1.57 billion, it is above the analysts' estimates. Those estimates went down, to $1.48 billion in 2013 from $1.51 billion on average in 2012.
The 2013 data is based on 221 companies that have reported, while the 2012 average was based on guidance from 279 firms.
"I think companies are getting a little bit more urgency to actually go ahead and proceed with their plans despite some of the remaining uncertainties around the fiscal cliff," said Natalie Trunow, chief investment officer of equities at Calvert Investment Management whose firm manages about $13 billion in assets. "They have to remain competitive long term."
Some large firms, including Apple , have already announced plans to increase capex, and sectors with the highest percentage of companies exceeding capex estimates so far in 2013 include health care, consumer discretionary and energy, the Thomson Reuters data showed.
To be sure, some expenditures will go toward maintenance of existing equipment rather than new plants, said S&P analyst Howard Silverblatt.
Clearly some will also be overseas. But there has been a surge in investment in oil and gas production in the United States, and there are signs that some manufacturing is returning, thanks to the promise of a cheaper energy supply.
Apple, the biggest U.S. company by market capitalization, said it will spend $10 billion on capital improvements this year, about $2 billion more than last year. It ranked sixth in terms of capex projections for 2013.
Oil and gas producer Chevron tops the list with about $33.4 billion of capex planned, followed by AT&T , ConocoPhillips , Wal-Mart and Intel , the Thomson Reuters data showed.
This spending could be crucial at a time when consumer and government spending are likely to decline. A rise in the payroll tax, higher gasoline prices and a delay in tax refunds slowed retail sales in January, a worrisome sign for the year. At the same time, a slate of across-the-board government spending cuts are set to take effect on March 1, barring a deal between the White House and Congress.
PROFIT MARGINS VULNERABLE?
Of course, big capital expenditures can take a toll on earnings. And investors have worried about the effect slower profit growth could have on the stock market, which started 2013 on a tear and briefly notched a five-year high.
Energy and other commodity areas have had big increases in capital spending over the last decade, a trend that could eventually hurt margins, said Vadim Zlotnikov, chief market strategist for AllianceBernstein in New York.
"I expect this very aggressive capital spending to create the type of cost inflation that would make it very difficult for profit margins to expand," he said.
But John Carey, portfolio manager at Pioneer Investment Management in Boston, said the positives tend to outweigh the negatives. "There's always a risk when companies invest, but without investment there can't be any long-term growth." (Reporting by Caroline Valetkevitch; Editing by Steven C. Johnson, Daniel Burns, Martin Howell and Tim Dobbyn)