Since the start of the New Year, economic optimism has buoyed market activity as stocks reach record highs and many businesses issue higher revenue forecasts. Even the word optimism has seen a jump in usage. According to Bank of America Corp., executives used the word “optimistic” in 51 percent of earnings calls this quarter and have been using the word “better” more often than “worse.” The National Federation of Independent Businesses’ confidence index also rose by 7.4 points, in the largest increase since 1980.
This optimism seems to be backed up by real results. Of the S&P 500 members who have reported earnings, 72 percent reported revenue increases.
In response, analysts and economists are predicting that corporate capital expenditures will increase, reversing recent trends for firm’s profits to go towards share buybacks and dividends. The Department of Commerce seems to confirm this sentiment, as it notes that expenditures on capital equipment rose 3.1 percent in the last quarter. Such investments should pave the way for firm’s long-term growth.
As firms continue to invest in themselves, consumers will likely benefit from lower prices and higher quality. For manufacturers, purchasing more and better production equipment increases the amount of goods they are able to produce, increasing supply in the market and consequently driving down prices. Having newer machines will likely lead to higher quality products, and service providers who spend on new equipment will provide a better experience for their customers. Even as some uncertainty remains over the future, businesses and, therefore, the economy have the potential to continue this growth.
For more, visit Bloomberg.