Uncertainty Around Trump's Policies Likely to Reduce Business Investment -

Capital expenditures among US manufacturers are unlikely to see the post-election boost that many anticipated due to uncertainties regarding the economic policies that President-elect Donald Trump will enact when he assumes office in January.

Recent surveys suggest modest growth in capital spending within the manufacturing sector for the coming year, rather than the significant uptick many had expected following the election results and the Federal Reserve’s plans to reduce interest rates.

A survey carried out in the fourth quarter among members of the National Association of Manufacturers revealed that, on average, participants predict that capital investments will grow by just 1.6% over the next year, an increase from 0.7% during the third quarter, before the presidential election.

“This growth is not particularly strong, but it does reflect the current policy environment,” remarked Jay Timmons, the association’s president and CEO. He pointed out that spending could see a more substantial rise if Congress promptly passes legislation to extend the expiring tax cuts from 2017 and introduces other beneficial tax measures.

If this happens in the first quarter, spending might witness a “fairly dramatic” increase, and there would be greater optimism about US investments, Timmons noted during an interview at Bloomberg’s Washington office. On the other hand, if legislative actions are delayed until later in the year, potential investment decisions might also be postponed.

The level of capital expenditures by manufacturers in 2025 will depend on when the tax legislation is enacted and whether businesses can utilize provisions for immediate deductions on costs associated with equipment and facilities, similar to what occurred following the 2017 tax reform, according to Scott Paul, president of the Alliance for American Manufacturing.

The Institute for Supply Management’s Supply Chain Planning Forecast, released this week, suggests that the anticipated increase in manufacturing capital expenditures will be lower in 2025 compared to 2024, a year in which spending was limited due to high interest rates.

This cautious outlook reflects worries that Trump’s threats of imposing extensive tariffs might inflame inflation and disrupt supply chains, as noted by Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee. There is also uncertainty about the specific tariffs Trump might implement, as he has described using tariff threats as part of his negotiation strategy.

Interest rates

Federal Reserve Chair Jerome Powell mentioned during a Wednesday press conference following the central bank’s latest decision that predicting inflationary risks associated with tariffs is difficult without clarity on the specific trade policies that will be adopted. He suggested that some officials might have lowered their expectations for fewer rate cuts in the upcoming year, anticipating inflationary pressures resulting from actions by the Trump administration.

“We don’t know which goods will be subjected to tariffs, from which countries, the duration, or the extent,” Powell clarified. “We also lack clarity on potential retaliatory tariffs and how any of this will impact consumer prices.”

Some economists contend that Trump’s pledge to enforce mass deportations of undocumented immigrants could also rob the manufacturing sector and other industries of essential labor.

The increased uncertainty around which actions Trump may actually take will likely deter manufacturers from investing in additional capacity until there is clearer insight into policy, stated Samuel Tombs, chief US economist at Pantheon Macroeconomics, in a recent commentary.

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