Corporate America’s capital expenditures remains low as many companies opt for buyback and dividend plans. Nevertheless, this could leave a relatively new capex exchange traded fund more room to rise once firms begin to expand operations.
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Business capital spending is an important indication of how confident Corporate America is in the future, according to Morningstar‘s director of economic analysis, Bob Johnson.
“They won’t be buying big equipment if they feel the economy is going to be in weak condition. So, it’s a great forward indicator,” Johnson said.
Equipment and technology also help the labor force do more or generate greater productivity. The better the equipment, the more people will be able to produce. For instance, a farmer planting and sowing with his or her bare hands will not be able to do as much compared to someone with tractors on hand.
“So, capital spending is really important,” Johnson added. “It’s really only the second other factor that’s out there besides labor-force growth that moves GDP forward. So, it’s very important that businesses keep investing for the future.”