Capital Spending Set To Increase in 2021. What Are Producers Investing In?

Few manufacturers were spending big bucks in 2020. Most — including some of the biggest names in industry — were looking for ways to trim the fat, batten down the hatches, and keep the balance sheet in the black during the pandemic. As a result, extraneous spending was the first to get the axe, which led to a major reduction in capital expenditures (CapEx) across the board. Big investments were down to a level not seen since 2009.

Now, we’re headed into a new year with a promising new outlook. Manufacturers are once against starting to budget and plan, and there’s a good likelihood they’re earmarking money for major CapEx investments in 2021.

Spending outlook for 2021

According to an ISM Report, “capital expenditures are expected to increase by 2.4% in the manufacturing sector after a 2.4% decline in 2020.” This isn’t a tit-for-tat rebound, however. The decrease in spending last year represents a pullback not seen in more than a decade. The rebound expected in 2021 isn’t just a return to normalcy, it’s a firm signal from manufacturers that solidifies manufacturing’s recovery.

The same report explains where the spending is expected to come from. According to the ISM Report, “revenues are expected to increase in 15 of 18 manufacturing industries.” Companies are preparing for an influx of cash in the post-pandemic year, and are already beginning to earmark investments for the future.

What are manufacturers investing in?

CapEx investments can take many forms, from equipment investments to funding for new business segments. In a post-pandemic year, manufacturers willing to make significant CapEx investment aren’t looking to gamble. They’re making investments in the future that will equate to new return on investment (ROI).

• Investments in workforce development will prove to be the most popular. With reshoring prospects and employment numbers currently faltering, manufacturers know their biggest challenge moving forward is an expanded workforce.
• Industry 4.0 investments also will top the list of CapEx investments. The Industrial Internet of Things (IIoT) buildouts on the back of a strong (and growing) 5G network are sure bets on the future, and factory automation is poised to be a priority in the decade ahead.
• Infrastructure upgrades can kill two birds with one stone, laying the groundwork for Industry 4.0 upgrades and production expansions. This also may include facility expansions to accommodate new value streams.

While some manufacturers may choose to invest in new equipment (upgrades), the key is ROI for the future. Manufacturers willing to spend in 2021 will do so with a purpose and an outlook far into the future.

Balancing risk and reward

Willingness to spend and having the funds to spend need to be backed with decisive decision-making about how to spend. The first quarter will prove pivotal for manufacturers who want to make mid-year investments that manifest before the close of 2021. Making smart CapEx choices with a mind for the ongoing recovery of the economy and the transitionary time we’re in means considering investments from a defensive standpoint, as well as a means to revenue generation. How will your investment protect your success in the future?

The answer to responsible CapEx spending in 2021 will vary from company to company. What is certain is that more and more companies are seeing 2021 as their opportunity to make meaningful investments they missed out on last year.