A Closer Look Part II

In this segment of A Closer Look, we revisit our sanguine economic outlook while providing potential solutions for investing to meet environmental and market demands, as well as exploring factors that will inform growth, productivity, and capex status in 2022.

Wilmington Trust Senior Economist Rhea Thomas and M&T Commercial Equipment Finance Group Manager of Direct Originations Scott Weissmann have analyzed business capital expenditure trends and the infrastructure and tax bill on the horizon.

Business capital expenditures remain above pre-pandemic levels as of the 2Q 2021. In fact, companies are sitting on cash at record levels; global corporations have a record $6.8 trillion, 45% above the pre-pandemic 5-year average. As companies continue to contend with labor shortages, consumer demand, and supply chain challenges, we expect 2022 growth to be supported by consumer spending, additional capex, and inventory rebuild.

How can businesses unlock capital to spend intelligently?

No matter the question, the answer is technology. Investment in information processing equipment and software has led the way since the onset of the pandemic as firms increasingly pivoted to the use of technology to adapt to the pandemic environment including online retailing, telemedicine, and virtual working. In 2020, companies cut spending in nearly every category but tech.

Now is the time to deploy excess dry powder on capital expenditures, especially those geared toward technological enhancements, cloud computing, etc. This could also include your business to spending intelligently at a commercial level to gain environmental sustainability and energy efficiency. 

Those particularly in the construction, manufacturing, or transportation industries might look to renewable energy solutions that allow you to build scale while adding efficiency such as the installation of solar rooftops in combination with battery storage to power your business, or purchasing electric vehicles. Investing in renewable solutions can help by providing substantial energy savings by lowering emissions, becoming a net zero energy company, or reducing MWh of energy consumed, as well as have a positive impact on your bottom line.

Labor shortage pains and wage pressures

The pandemic has disrupted the job market in ways beyond what we could have imagined. Employers in all markets are feeling the pinch, with the consumer sector being hardest hit. Companies looking for efficiency and productivity are having to balance their labor force through job automation (again, technology). This is especially true in segments with equipment that can be operated remotely via automation to manufacture and move inventory. 

On the horizon: Tax legislation and potential outcomes

Two pieces of federal legislature currently in the works with massive potential budgetary and tax impacts that could affect business owners like you.  Most notably changes to the current corporate tax structure. There are also provisions for potential tax breaks for purchasing e-vehicles, green tax credits for businesses, and affordable and workforce housing development, preservation, and retrofit. Other factors that are under deliberation that could impact your workforce.

As the infrastructure bill has bipartisan support, we anticipate the bill creating jobs, making goods and services move more quickly and reliably, and making American communities more climate-resilient. The multiplicity of factors impacting business owners spread across industries, most predominantly construction, manufacturing, and logistics and distribution.

Additionally, this bill may include “Direct Pay” language for Investment Tax Credit (ITC), Production Tax Credit (PTC), and consumer tax credits for renewable energy. This provision would create a process whereby developers could secure the benefits of the tax credits directly from the government rather than requiring a tax partner to monetize those credits. This process would be subject to an application process and the satisfaction of a series of requirements by the government. Failure in these tests could result in failure to receive credits or clawbacks. Developers may continue to operate under the present model.

Additional infrastructure spending, if passed, could support capex in areas related to engineering, construction, raw materials, utilities, transportation (electric vehicles in particular), environmental remediation, clean energy, and broadband.

No crystal ball, just a consultative team of commercial equipment finance professionals

While we are not in the business of making predictions on government legislation, we are well-equipped to offer a consultative and reactive approach with products and solutions that can address any outcome. Contact our team here and browse our solutions to discuss what you can do before the year’s end and beyond to benefit your business in 2022.

Alternatively, reach out to your Equipment Finance Representative, or contact Scott Weissmann directly at (607) 779-5912, or sweissmann@mtb.com. M&T Bank is proud to provide support to our commercial clients through every step of their business journey.

 

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