Salient to Investors:

Jan Hatzius at Goldman Sachs said:

  • Home construction will grow 10% to 15% by 2015-2016, while capital spending will fall to 5%, a reminder of how very different this recovery is.
  • It is unusual for a housing recovery to lag a capital-spending recovery.
  • Gains in business investment have helped better align the stock of equipment and structures with the economy’s potential growth rate
  • Long-term, the potential GDP growth rate is 2 to 2.25%.
  • Goldman Sachs analysts see the demand for new houses reaching 1.5 million to 1.6 million a year, in part because millennials will start families and become more open to home-ownership.

Ellen Zentner at Morgan Stanley said:

  • An upturn in homebuilding brings a more viable expansion with a longer life, while capex is more exposed to the ups and downs of global markets and tepid US demand. Zentner said there is a lot of recovery left in housing.
  • Companies lack the urgency to expand much beyond replacing aging equipment and machinery, while outlays on technology have been fairly resilient since the recession, leaving less room for further gains.
  • Business investment will expand 4% to 5%, and companies feel they are meeting aggregate demand with the proper capital and labor.
  •  65% of cash on US corporate balance sheets is held abroad, and companies are directing more money toward mergers and acquisitions or betting on overseas markets.

Michelle Meyer at Bank of America said:

  • Homebuilding – 3% of GDP versus 12% for capex – matters because of its broader linkages that feed back into the economy to spur household spending, wealth, hiring, and confidence.
  • Expect a bumpy but higher housing recovery, fed by tailwinds from improving employment, credit and historically low mortgage costs – we do not have the housing stock to meet demand so housing has not plateaued here
  • The jury is still out in how quickly capex will accelerate.

Joe Carson at AllianceBernstein expects a powerful cycle for business investment, helping stem the productivity slowdown that has restrained growth. He said companies will find reason to invest in the US in the next decade because the spillover from the domestic energy boom is still nascent, state governments have a growing ability to fix aging infrastructure, and companies have to invest to boost profits.

Guy LeBas at Janney Montgomery Scott said the potential negative impact of Fed tightening could be big, so CFOs do not want to embark on long-term projects now.

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