HOUSTON, April 1, 2016 /PRNewswire/ -- Despite the hand-wringing about U.S. companies' perceived reluctance to spend on business investments, their spending on actual equipment has rebounded to pre-recession levels, the latest report by BBVA Compass economists says, though the makeup of those outlays may help explain why there hasn't been a corresponding gain in GDP.
BBVA Compass Senior Economist Shushanik Papanyan, the author of the report, writes that while equipment investment has returned to its pre-Great Recession long-term trend, the gross output has done the opposite and converged on a lower growth rate. The bottom line is that companies are buying equipment but aren't producing more, she said.
"This is a new normal, much like we now understand there's going to be a new normal in oil prices and interest rates," Papanyan said. "If you dig deeper into the trends, you see that companies' expenditures have shifted. While they're spending the same overall on equipment, more of that is going toward software and intellectual property. They're trying to gain advantages in efficiencies, in other words, but they're not producing more because the demand just isn't there thanks to depressed consumer spending."
There has been a major shift in equipment expenditures since the 1960s, with manufacturing and agriculture accounting for far less. But equipment expenditures in health care and the finance sector made up for that loss. Papanyan also found that while equipment expenditures in the mining sector plummeted — which is to be expected since it includes oil and gas and reflects that industry's deep uncertainty — the overall impact will be limited.
"Yes, there are drastic cutbacks in the mining sector on business investment, but that's actually not expected to have a visible effect on overall equipment investment since the sector's share of that, pre-recession, was at just 3.9 percent," Papanyan said. "These shares haven't changed much since the 1960s."
Papanyan will present her findings and answer questions about trends in equipment investments next Thursday (April 7, 2016) during a Webex session at 10 a.m. CDT. To access the online meeting, click here. (If asked, enter the meeting number 713 270 216 and password bbva1234.) Or to listen in on the conference call, dial (877) 768-4036 or (972) 932-2100 and enter access code 713 270 216.
Download Papanyan's report here: https://goo.gl/s0AwjQ.
Led by BBVA Compass Chief Economist Nathaniel Karp, the bank's research team analyzes the U.S. economy and Federal Reserve monetary policy. For its analyses, the economists create models and forecasts for growth, inflation, monetary policy and industries. The economic research team also follows a variety of issues that affect the Sunbelt states where BBVA Compass operates. Any statement or opinion of a BBVA Compass economist is that economist's own statement or opinion and does not represent a statement or prediction by BBVA Compass, its parent companies or management. Follow their work on Twitter @BBVAResearchUSA and @BBVACompassNews.
About BBVA Group
BBVA Compass is a subsidiary of BBVA Compass Bancshares Inc., a wholly owned subsidiary of BBVA (NYSE: BBVA) (MAD: BBVA). BBVA is a customer-centric global financial services group founded in 1857. The Group has a solid position in Spain, is the largest financial institution in Mexico and has leading franchises in South America and the Sunbelt region of the United States. Its diversified business is geared toward high-growth markets and relies on technology as a key sustainable competitive advantage. Corporate responsibility is at the core of its business model. BBVA fosters financial education and inclusion, and supports scientific research and culture. It operates with the highest integrity, a long-term vision and applies the best practices. The Group is present in the main sustainability indexes. More information about the BBVA Group can be found at bbva.com.
About BBVA Compass
BBVA Compass is a Sunbelt-based financial institution that operates 666 branches, including 340 in Texas, 89 in Alabama, 73 in Arizona, 61 in California, 45 in Florida, 38 in Colorado and 20 in New Mexico, and commercial and private client offices throughout the U.S. BBVA Compass ranks among the top 25 largest U.S. commercial banks based on deposit market share and ranks among the largest banks in Alabama (2nd), Texas (4th) and Arizona (4th). BBVA Compass recently earned top nods for best mobile app and best regional bank in the South & West in Money magazine's annual list of the Best Banks in America. Additional information about BBVA Compass can be found at bbvacompass.com, by following @BBVACompassNews on Twitter or visiting newsroom.bbvacompass.com.
BBVA Compass is a trade name of Compass Bank.
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SOURCE BBVA Compass