Source: Unigestion, Bloomberg, as of 23 July 2021.
US firms’ cash reserves have been building up thanks to the coronavirus crisis. A key use would be capital expenditure, which had been decelerating for some time before the pandemic and shifted into outright contraction last year.
Capex surveys, for example the one administered by the Kansas City (KC) Fed, indicate that corporate investment activity should pick up meaningfully in the months ahead. Our chart demonstrates the reasonably tight link between this survey and actual capex growth for the S&P 500 (lagged by 12 months). If the historical relationship holds, a capex recovery would support near-term growth and put it on a more sustainable path.
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