As corporations rake in record profit, big businesses this year have been investing more on improvements than any point before the pandemic, according to a new Oxford Economics report.
By the second quarter of this year, capital expenditures had stage a “historic rebound” from the onset of the COVID crisis, eclipsing a prior pre-pandemic level by 1.4%, Lydia Boussour, lead U.S. economist, wrote in a Thursday note.
Not surprisingly, the bulk of the spending boost since late 2019 has been in technology-related investments, driven in large part by the scramble by corporate America to support remote work.
Specifically, the top spending increase was on information technology equipment, up 20% in the second quarter from the fourth quarter of 2019, while software investment was next, up 17% for the same stretch.
“Most of the upswing in capital expenditures can be attributed to a surge in spending on information processing equipment (including computers and hardware) and software which have surged well past their pre-pandemic levels as
companies rushed to invest in labor-saving and remote work technologies,” Boussour wrote.
David Bianco, DWS Group’s Americas chief investment officer, pointed to the “increased digitalization” of S&P 500
business mix and the “accelerated digitization of the economy” during the pandemic as key drivers of the profit surge, in a recent market note.
On the flip side, Oxford Economics noted that spending on structures dropped by roughly 20%, including on office buildings, plants and malls, where investments remain “severely depressed as weaker demand for office space, sky-high material prices, and labor shortages have exacted a toll.”
Companies have loosened their purse strings as corporate profit, before taxes, swelled to a record high of $2.79 trillion in the second quarter, up 16% from the fourth quarter of 2019, according to the report.
The amount of cash and liquid assets on hand at corporations also hit $6.4 trillion in the first quarter, up 22% from pre-pandemic levels, which along with ongoing demand for goods despite supply-chain bottlenecks should “support production and capex growth in 2022.”