Why Companies Are Hesitant to Invest, Even if Demand Is Soaring

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Heard on the Street: Investment spending in the largest economies fell this fall; some businesses worry about durability of demand and are struggling for raw materials or equipment

and uncertainty over the durability of the current economic boom hold back spending, a trend that could further exacerbate already high inflation., and consumer prices have risen sharply over recent months. While economists expect companies would have sunk money into expanding capacity, investment spending in many of the world’s largest economies has instead stalled.

Investment spending in the U.S. has rebounded from its collapse in spring 2020 and now slightly exceeds pre-pandemic levels. But in the third quarter of this year it fell slightly. In China’s southeastern city of Wenzhou, Zhu Chaohu who leads an auto-parts company said he isn’t eager to invest in new factories or hire more workers, even though revenue has grown by about 25% so far this year from a year ago.

That combination of high sales and sluggish investment is also common outside China. According to BNP Paribas, capital expenditure by businesses included in the U.S. Standard & Poor’s 500 index during the third quarter was at its lowest level relative to sales since 2010. Matilde Poggi, a winegrower based in Cavaion Veronese, in northern Italy, says that many of the country’s vineyard owners just can’t expand because they are struggling to get their hands on needed equipment and materials.

 

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