# Wait and see: U.S. companies curb investment as they await Fed moves Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2022-08-08 Category: NEWS Category URL: https://financedigest.com/category/news Meta Title: U.S. Business Investment Slows Amid Inflation and Rising Meta Description: U.S. business investment down due to inflation and rising rates in second quarter. Outlook remains positive as experts predict temporary pullback URL: https://financedigest.com/wait-and-see-u-s-companies-curb-investment-as-they-await-fed-moveshtml ![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/2022-08-08t100439z1lynxmpei770c1rtroptp4usa-economy-investment-gdp-1736815500903-compressed.jpg) By Timothy Aeppel (Reuters) – Business investment appears to be an early victim of red-hot U.S. [inflation and rising](https://www.financedigest.com/oil-rises-about-2-with-u-s-and-china-inflation-in-focus.html "Oil rises about 2% with U.S. and China inflation in focus") interest rates. Nonresidential fixed investment, which is how the [Commerce Department lumps together things like spending by businesses](https://www.financedigest.com/smishing-is-a-new-virus-plaguing-big-business-conversational-commerce-to-the-rescue.html "‘Smishing’ is a new ‘virus’ plaguing big business – Conversational Commerce to the rescue!") on new buildings and renovations of existing ones, slipped 0.1% on an annualized basis in the second quarter. This acted as a drag on gross domestic product, the broadest measure of U.S. economic output. It also ended a seven-quarter run of outsized additions to GDP that on average were more than double the [category’s historic contributions to growth](https://www.financedigest.com/how-a-british-tech-brand-can-maintain-category-leading-position-and-continued-growth-by-investing-in-the-uk-people-and-infrastructure.html "How a British tech brand can maintain category leading position and continued growth by investing in the UK people and infrastructure"). The cutbacks hit [every industry](https://www.financedigest.com/automation-is-disrupting-every-industry-even-agriculture.html "Automation is disrupting every industry – even agriculture") except mining and drilling. Economists are watching closely to [see how inflation](https://www.financedigest.com/britains-next-sees-lower-clothing-inflation-shares-dip-on-cautious-outlook.html "Britain’s Next sees lower clothing inflation, shares dip on cautious outlook") hits different parts of the economy. Consumer spending has softened in the [face of higher prices](https://www.financedigest.com/bristol-myers-pfizer-abbvie-drugs-likely-to-face-u-s-price-negotiation.html "Bristol Myers, Pfizer, AbbVie drugs likely to face U.S. price negotiation") but still added to growth in the second quarter. [Business investment](https://www.financedigest.com/credit-agricole-launches-china-ma-and-investment-banking-business.html "Credit Agricole launches China M&A and investment banking business") stalled in the second quarter: https://graphics.reuters.com/USA-ECONOMY/INVESTMENT/jnvwenwewvw/chart.png ![](https://www.globalbankingandfinance.com/wp-content/uploads/2022/08/411.jpg) And even as [companies curtailed adding new buildings](https://www.financedigest.com/dataiku-and-keyrus-uk-partner-to-build-better-ai-for-companies.html "Dataiku and Keyrus UK partner to build better AI for companies") and other expansions, they kept hiring. U.S. [job growth](https://www.financedigest.com/u-s-job-growth-powers-ahead-unemployment-rate-at-3-4.html "U.S. job growth powers ahead; unemployment rate at 3.4%") accelerated in July, and the U.S. job [market has now recovered to the level](https://www.financedigest.com/eu-u-s-eye-level-playing-field-for-eu-electric-cars-in-u-s-market.html "EU, U.S. eye level playing field for EU electric cars in U.S. market") it was before the pandemic. Meanwhile the stress on global [supply chains eased](https://www.financedigest.com/uks-j-d-wetherspoon-returns-to-profit-as-supply-issues-ease.html "UK’s J D Wetherspoon returns to profit as supply issues ease") last month to its lowest level since January 2021, according to the New York Federal Reserve. The pullback in business spending “is more of a pause than a sign of structural weakness,” said Andrew Hunt, who heads the Center for [Real Estate](https://www.financedigest.com/gold-london-real-estate-and-the-theresa-may-effect.html "GOLD, LONDON REAL ESTATE AND THE THERESA MAY EFFECT") at Marquette University in Milwaukee. Hunt said a surge in rents and construction costs earlier this year – part of a wave of price [increases that have pushed inflation to a four-decade high – caused some businesses](https://www.financedigest.com/frances-ynsect-to-refocus-bug-business-after-capital-increase.html "France’s Ynsect to refocus bug business after capital increase") to postpone adding new space. But the pullback will be temporary, he predicts. He [noted that demand for space is so high and available space in such short supply that vacancy rates are below 5% and in some markets](https://www.financedigest.com/the-chelated-iron-agricultural-micronutrient-market-to-escalate-on-a-holistic-note.html "The Chelated-Iron Agricultural Micronutrient Market To Escalate On A Holistic Note") there is essentially no space available. People said, ‘Let’s see if the [Fed does what they said they were going to do – and see how things stabilize](https://www.financedigest.com/fed-in-spotlight-with-us-focus-on-stability-first-republic.html "Fed in spotlight with US focus on stability, First Republic") as we move into the fall.’ The [Fed has lifted interest rates](https://www.financedigest.com/fed-rates-up-boe-up-ecb-up-stocks-up.html "Fed rates up, BoE up, ECB up, stocks up") at each of its meetings beginning in March, including back-to-back outsized increases of three-quarters of a percentage point at its last two policy gatherings. Far-larger-than-expected payrolls gains for July, data for which was issued on Friday, puts a third [hike of that size squarely in play for the next Fed](https://www.financedigest.com/asian-shares-gain-as-fears-about-rapid-fed-hikes-bank-crisis-fade.html "Asian shares gain as fears about rapid Fed hikes, bank crisis fade") meeting in September. CBRE Group Inc., which tracks [industrial property trends](https://www.financedigest.com/the-finance-industry-a-look-at-trends-and-predictions-for-2021.html "The finance industry – A look at trends and predictions for 2021"), also views the pullback on business spending as temporary – and concentrated only in some pockets of the industrial sector. The real estate company noted in a recent report there was a record-breaking 626.6 million square feet of new industrial construction underway [nationally in the second quarter – nearly a third](https://www.financedigest.com/still-living-at-home-a-third-of-the-nation-cant-afford-to-rent.html "Still living at home? A third of the nation can’t afford to rent") of which was already leased. Last year was the [biggest industrial leasing year ever](https://www.financedigest.com/the-biggest-ever-shake-up-of-insurance-law-is-finally-here-wellalmost.html "The biggest ever shake up of insurance law is finally here! Well…Almost.") – over 1 billion feet in the U.S.,” said John Morris, [president of the logistics business](https://www.financedigest.com/soldo-welcomes-darren-upson-as-vice-president-of-small-business-europe.html "Soldo Welcomes Darren Upson As Vice President Of Small Business Europe") for the Americas at CBRE. This year looks like it won’t be quite as big,” he said, noting they [project 850 million](https://www.financedigest.com/sse-to-invest-122-million-in-scottish-pumped-hydro-project.html "SSE to invest 2 million in Scottish pumped hydro project") square feet will be leased. That would still [mark the second-biggest year](https://www.financedigest.com/tall-marks-its-25th-year-with-celebration-day.html "TALL Marks its 25th Year with Celebration Day ") in their records. Morris said the slowdown appears concentrated in smaller companies, rather than the big-name [e-commerce and retail firms](https://www.financedigest.com/polish-e-commerce-firm-allegro-eyes-higher-q1-profit.html "Polish e-commerce firm Allegro eyes higher Q1 profit") that gain the most attention for their investments in giant warehouses. Leasing of the biggest warehouses – those over 700,000 square feet – is up 25% in the first [half of this year](https://www.financedigest.com/an-apple-a-year-half-of-iphone-users-will-upgrade-to-the-iphone-7.html "AN APPLE A YEAR: HALF OF IPHONE USERS WILL UPGRADE TO THE IPHONE 7"), compared to 2021, said Morris, while leasing of warehouses of 50,000 square feet or less is off 21%. If you think about who typically is leasing those (smaller) buildings,” it is more likely to be smaller companies, he said, adding that those [firms may be more sensitive to costs like rising](https://www.financedigest.com/analysis-rate-rises-pile-pain-on-sme-firms-in-u-s-and-europe.html "Analysis-Rate rises pile pain on SME firms in U.S. and Europe") rents. Craig Meyer, president of industrial for the Americas at Jones Lang LaSalle Inc., said [surging costs](https://www.financedigest.com/suedzucker-quarterly-profits-surge-73-5-despite-cost-rise.html "Suedzucker quarterly profits surge 73.5% despite cost rise") have curbed investments in industrial space. But he remains optimistic. We [talk to all our brokers about what will happen to the end of year](https://www.financedigest.com/extraordinary-rollercoaster-good-friday-talks-remembered-25-years-on.html "‘Extraordinary rollercoaster’, Good Friday talks remembered 25 years on"). And all of their pipelines seem to be solid,” he said. (Reporting by Timothy Aeppel; Editing by Dan Burns and Chizu Nomiyama) --- This blog is powered by Superblog. Visit https://superblog.ai to know more. ---