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.
Big corporate spend in tech
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.”