US Economy
US companies spend on share purchases; Tight-fisted on capex
By Michael Hennigan, Finfacts founder and editor
Jul 2, 2014 - 8:35 AM

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US companies spent almost $600bn in buying-back their own shares in 2013 and this was almost a third of capex: capital expenditure represented by the nominal purchases on plant, equipment and intellectual property spent by the economy’s entire business sector.

The Wall Street Journal says that while that’s a positive trend for household wealth, it raises questions about companies’ commitment to move ahead with capital spending projects.

The Journal also says that companies purchasing their own shares represent the single biggest category of stock buyers today, according to a study this month by Jeffrey Kleintop, chief market strategist at brokerage firm LPL Financial.

Only one other major group, individuals, is a net stock buyer now and individuals are buying less than corporations,  Kleintop found. Of six major groups he identified, hedge funds, foreigners, insiders and investment institutions such as pension funds and insurance companies all are net sellers, he found. He used data from the Fed, the US Treasury, FactSet, the Investment Company Institute and other sources.

Companies spent $598.1bn on stock buybacks last year, according to Birinyi Associates - - the second-highest annual total in history, behind only 2007, Birinyi calculated. The pace picked up in the first quarter of 2014, when companies spent $188bn, the highest quarterly amount since 2007.

Members of National Association for Business Economics expect business investment on equipment and IP to grow by 3.1% in 2014 compared with 2.7% in 2013.

A survey of big firm chief executives released by the Business Roundtable shows a decline  in capex spending plans. Only 44% think their company’s spending will pick up in the next six months, down from 48% saying that in the first quarter while only 24% of small-business owners plan capital outlays in the next 3 to 6 months, according to the National Federation of Independent Business. The reading has made no headway in over a year because small firms are in “maintenance mode,” the NFIB report said.

Finfacts: Trend of falling business investment in developed countries

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