U.S. Capital Spending Leaders Through 2010

Last year saw the return of capital spending growth in the United States. Global Insight's five-year capital spending forecast calls for average annual growth in fixed equipment investment to accelerate to 6.4% per year from now through 2010. This compares dramatically with the previous five-year period, when fixed equipment investment increased just 1.6% per year in nominal terms. Moreover, during 2001–05, the performances across industries were far from uniform. Educational and health services, agriculture, and construction and mining led with increases ranging nearly 6% to 11%, while information, utilities, and manufacturing posted flat to negative growth. Conversely, over the next five years, virtually all industries will benefit from the expected boom.

The following table shows the pattern of equipment spending over time, along with each industry’s share of total spending. While the shares will change over the next five years relative to the 2001–05 period, the variations are minimal.

The equipment segment that will experience the largest growth in spending is computers and office equipment, within which computers and peripheral equipment will be the top performer. In 2006, U.S. computers and peripherals investment will surge 12.2%, with a compound annual rate of 11.0% per year to 2010. Corporate America is currently flush with cash, allowing them to boost investment in different equipment, including computers and related products. The pressure is on to improve technology and efficiency and one way of meeting the challenge is to adopt emerging state-of-the-art technologies, including information technology-related products. At the same time, equipment makers are supplying a steady stream of new generation and more powerful products at lower prices. Thus, the incentive to invest in computers and related products comes from two fronts—demand and price. The largest two domestic investors in this segment are financial, professional, and business services and manufacturing industries, respectively, while educational and health services will gain share over information services.

The growth leader in computers and peripherals investment will remain educational and health services, which raise their compound annual spending gains from 5.8% during 2001–05 and to a projected 11.8% during 2006–10. This service segment, both private and public, has much the same marching orders as other businesses: to improve productivity and efficiency and reduce costs. In education, greater use of technology is viewed as a way of raising student performance, something lacking in many school systems throughout the United States. Health services are under enormous pressure to better monitor themselves with an eye to controlling skyrocketing costs, and the use of technology is viewed as a means of doing just that. Moreover, technology has already become an integral part of diagnostic and treatment procedures, a trend that will only continue in the years ahead.

This year provides a strong kick-off to the forecast, with computers and peripherals investment by educational and health services pegged at 13.1% growth. These services are also expected to increase their share of the capital spending pie for computer hardware, from 8.6% in 2005 to 8.9% in 2010, with $15.7 billion in expenditures on computers and peripheral equipment forecasted for 2010. Hospitals—which already account for more than 45% of computer hardware expenditures in the educational and health services segment—will continue to lead the way, with computer spending surging 13.6% in 2006 and 12.0% compounded annually through 2010, to a total of $7.3 billion. Ambulatory healthcare services will boost investment 13.3% in 2006. Educational services will raise computer spending 12.4% in 2006, but will continue to lose share to ambulatory healthcare services through 2010.

About Global Insight's Equipment Market Monitor Global Insight's capital equipment forecasts are housed in our Equipment Market Monitor (EMM) product. EMM makes it possible to measure and forecast the dynamics of capital expenditures on equipment in the United States. EMM covers 123 industries and 27 types of equipment for all state geographies. By using Global Insight's Equipment Market Monitor data, one can segment the size of the capital spending market by industry and equipment type and examine any shift due to profits, technological implementation, and new technology applications. For more information, go to www.globalinsight.com/equipment.