Don’t count on flood of cap-ex for 2013

There seems to exist a collective hope among financial professionals that there will be a flood of capital expenditures from cash-rich firms when (if?) the “fiscal cliff” is resolved in the US. Unfortunately, there is not always a positive market correlation with increased capital expenditure. Even if there were, Mr. Parker from Morgan Stanley suggests there is no reason to believe this is coming.

1. Capital expenditures expected to decline in 2013, from near average levels in 2013. Therefore, upside not expected.
2. Overall manufacturing utilization is still below long term average. Current trends indicate slowing utilization.
3. Historical analysis suggests pent-up spending in some sectors, yet fundamental analysis suggests otherwise.
4. Global inventory-to-sales has been flat for 10 years, there is no evidence suggesting a big capacity surge is forthcoming.

Rather than big cap-ex, 2013 will see mostly lay-offs.

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