Tools Unleash Productivity

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Capital expenditures are on the upswing, and the average age of equipment has climbed to the highest level in 15 years.

We are in the Q1 earnings season home stretch. 92% of the companies have reported and the overall results have been wildly successful with earnings up 25% over last year’s Q1. Every sector except real estate exceeded expectations. Energy earnings were up 90%, technology up 35% and materials up 44%. However, investors are forward looking and skeptical of the ability to keep the good profit news flowing. In particular, investors are debating the corporate tax cut and whether or not it is a one and done. The tax cuts did have a one-time profit boost for many of the large corporations. However, many of these large companies had an effective tax rate below the stated 35% before the tax reform package. They were able to lower their effective rate by moving operations overseas. Now that tax advantage has been eliminated and capital investment that would have gone to China is being re-shored to the U.S. The lack of business spending and investment over the last decade is the reason productivity has been lacking. Workers cannot be productive if you take away their tools. Spending on structures, equipment, software and intellectual property in the U.S. is now already on the rise in both the services and goods sectors. CAPEX is up 6.1% year-over-year. In addition, industrial production in April was up .7%, 3.5% YoY and capacity utilization was the highest in three years. The worker toolboxes are being restocked. This is certainly not a one and done.
Please watch CAPEX on page 11 of the Global Perspectives Book.

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