Welcome to the end of the week and another edition of Happy Hour! Just sit back, relax, and enjoy your end of the week roundup of all things interesting in the land of money.
A lack of capex spending has held down the economy so far. That’s rumored to be changing as CEO’s talk about a pick up in spending. For those not fluent in business speak, capex (capital expenditures) is money used to maintain or grow a business.
The easiest way I can explain it is to use a house. A certain amount of money is needed every year to maintain your home. Call it basic upkeep – roof repairs, paint, windows, yard work, all the stuff you spend money on to keep your home from falling apart and looking nice.
Now what happens if you spend more than needed? Well, you might get new countertops, a deck, finish the basement, landscaping, or an addition. In return, this boosts the value of your home and puts more people to work. Who knows, it might push your neighbors to do the same and spruce up the neighborhood.
Since 2008, companies have done the bare minimum to keep the house from falling apart. Rather than put more money into the business, it bought back shares. On the surface, this gives the impression that companies are growing. In reality, there’s a smaller pool to divide up earnings and dividends.
This is big news for the economy, if the rumors are true. But don’t expect great market performance in the short term with companies spending more money. Less buybacks and dividend increases will be offset by more spending, more hiring, new equipment, new factories, and bigger future growth. It’s a long-term story that will set companies up for real growth in the business cycle.