Manufacturers Cut Capital Spending, Keep Tech Plans

Manufacturers have scaled back spending on large projects during the COVID-19 pandemic, but many say they’re continuing with software upgrades and technology initiatives to keep up with changing customer needs and remain competitive.

Companies are using already allocated capital to maintain or accelerate investments in technology and research.

Industrial manufacturers’ capital expenditure typically goes toward improvements in business processes or new equipment. As the pandemic disrupted usual operations, many cut planned expenses to preserve cash. But spending on long-term digital and technology projects was spared.

A three-month moving average index of planned capital spending among U.S. manufacturers dropped in May to its lowest level since May 2009, according to Morgan Stanley, which maintains the data.

But the index, compiled from Federal Reserve surveys of manufacturers, rebounded strongly in June, suggesting that companies are more likely to make business investments over the second half.

Large manufacturers, which typically spend around 3 to 5 of percent of annual revenue on capital expenses, don’t want to weaken their ability to meet customer demand even during the pandemic and lose market share coming out of the economic downturn, said David Berge, a senior vice president at Moody’s, the ratings company.

Source: Wall Street Journal