Capital expenditures among US manufacturers are not expected to see the post-election boost that many anticipated, largely due to uncertainties regarding the economic policies President-elect Donald Trump may implement once he takes office in January.

Recent surveys suggest modest growth in capital spending within the manufacturing sector for the coming year, rather than the significant increase many were hoping for following the election’s end and the Federal Reserve commencing to lower interest rates.

A survey conducted in the fourth quarter among members of the National Association of Manufacturers showed that, on average, respondents expect capital investments to increase by only 1.6% over the next 12 months, up from 0.7% in the third quarter before the presidential election.

“That’s not particularly robust, but it also reflects current policy,” remarked Jay Timmons, the association’s president and CEO. He pointed out that spending could see a more substantial rise if Congress quickly passes a bill to extend the expiring tax cuts from 2017 and implements other favorable tax policies.

Should this happen in the first quarter, spending might experience a “fairly dramatic” uptick, leading to increased optimism regarding investments in the US, Timmons shared during an interview at Bloomberg’s Washington office. On the other hand, if legislative actions are delayed until later in the year, investment decisions could also be postponed.

The level of capital expenditures by manufacturers in 2025 will depend on when the tax legislation is enacted and whether companies can utilize provisions that allow immediate deductions for expenditures related to equipment and facilities, similar to what occurred after the 2017 tax reform, according to Scott Paul, president of the Alliance for American Manufacturing.

The Institute for Supply Management’s Supply Chain Planning Forecast, released this week, reveals that the anticipated rise in manufacturing capital expenditures will be lower in 2025 compared to 2024, a year when spending was constrained by high interest rates.

This cautious outlook arises from worries that Trump’s threats of imposing broad tariffs may reignite inflation and disrupt supply chains, noted Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee. There is also uncertainty surrounding the specific tariffs Trump may enact, as he has indicated he would utilize tariff threats as a negotiation tactic.

Interest rates

Federal Reserve Chair Jerome Powell mentioned in a Wednesday press conference following the central bank’s recent decision that it is difficult to predict the inflationary risks associated with tariffs without knowing the exact trade policies that will be put in place. He indicated that some officials might have revised their forecasts for fewer rate cuts in the upcoming year, considering inflationary pressures stemming from actions taken by the Trump administration.

“We don’t know which goods will be subject to tariffs, which countries will be affected, the duration, or the extent,” Powell elaborated. “We’re uncertain about the possibility of retaliatory tariffs and how all this will impact consumer prices.”

Some economists contend that Trump’s pledge to conduct mass deportations of undocumented immigrants could deprive the manufacturing sector and other industries of essential labor.

The heightened uncertainty regarding Trump’s potential actions “will discourage manufacturers from expanding their capacity until there is a clearer policy direction,” noted Samuel Tombs, chief US economist at Pantheon Macroeconomics, in a recent commentary.

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