Insight & action

Corporate America is Finally Spending Again 

As we slept over the holidays, corporate America woke up. Data released last week from the Commerce Department indicates that companies are finally spending money again, investing in plant and equipment after months of deferral.

While we can debate whether higher spending on capital expenditures stems from an improving economy or Congress finally approving a two-year budget, clouds of uncertainty are giving way to greater corporate assertiveness. Total capital goods orders (non-defense ex-aircraft and parts) have risen to $69.7 billion, a level that exceeds even the pre-crisis peak.

The higher-than-expected jump in corporate expenditures has a number of implications. First, it suggests growth forecasts may be too low. The recent 4.1 percent print for "actual" growth in gross domestic product in the third quarter more than doubled the 2 percent forecast by 71 economists tracked by of the many data points lifting Citigroup's Economic Surprise Indicator to its highest level since September. Second, greater corporate spending generates higher profitability at industrial manufacturers.

We screened the 52 machinery makers in the S&P 1500 Index by profit growth, highlighting those most favored by analysts. Nine are forecast to grow gross earnings by at least 12 percent in 2014:

Five additional companies have seen estimates rise over the past four weeks, though we omitted them from our on-air segment because neutral ratings account for a greater percentage of the analyst coverage than buy ratings. We share them now for the benefit of blog readers: ITT Corp. (ITT), Kennametal Inc. (KMT), Nordson Corp. (NDSN), Pall Corp. (PLL) and Titan International Inc. (TWI).

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