US Economics Analyst
2025 Capex Outlook: A Gradual Rebound After the Factory-Building Boom (Peng)
Table of Contents
Business fixed investment grew at a robust pace of 3.6% over the past two quarters, even as the factory-building boom that powered capex growth last year plateaued. But this seemingly solid growth has actually been driven by a rebound in airplane production—excluding this, capital spending actually declined. In this week’s Analyst, we argue that these soft trends are temporary and that capex growth will rebound back to a solid pace in 2025.
Two headwinds will weigh on capex growth in the near term. First, aircraft investment rose by an annualized 500% over the past two quarters as Boeing – the largest US aircraft producer – ramped up production after finishing safety inspections. But the end of this rebound and a temporary hit from the Boeing strike in mid-September are likely to turn aircraft investment into a -0.4pp annualized drag on capex growth in the next two quarters.
Second, the boost from construction spending subsidized by the CHIPS Act and IRA has plateaued, and we expect it will soon turn into a -1pp annualized drag on capex. Offsetting this, however, equipment spending for these new factories is poised to rise next year.
In addition, we see two other tailwinds for capex growth in 2025. Growing investment in data centers and hardware equipment supporting AI technology will continue to provide a +0.5pp boost to capex growth next year. And lower short-term interest rates should provide a modest boost to medium- and small-size companies that rely heavily on short-term floating-rate loans for financing.
Post-election fiscal policy changes are likely to provide a boost to capex, while changes to trade policy are likely to be a drag. In particular, the likely extension of the 2017 corporate tax cuts and reinstatement of investment incentives should support business investment, reinforcing the impact of improved business sentiment. But the last trade war suggests that tariffs will likely reduce investment by raising input costs, prompting foreign retaliation, and creating uncertainty. Our estimates suggest that the net impact on 2025 capex of tax policy changes, improved business sentiment after the election, and tariff increases is slightly positive.
Taken together, we forecast flat capex growth in Q4, before growth gradually rebounds to a solid pace of just over 5% in 2025 on a Q4/Q4 basis, driven by rising equipment spending for the new factories, AI spending, lower financing costs, better business sentiment, and reinstatement of tax incentives.
2025 Capex Outlook: A Gradual Rebound After the Factory-Building Boom
Business fixed investment grew at a robust pace of 3.6% over the past two quarters, even as the factory-building boom that powered capex growth last year plateaued. But this seemingly solid growth has actually been driven by a temporary rebound in airplane production—excluding this, capital spending actually declined on net (Exhibit 1). In this week’s Analyst, we argue that these soft trends are temporary and that capex growth will rebound back to a solid pace in 2025.
Exhibit 1: Apart from the Large Boost Provided by Delayed Airplane Production, Business Investment Fell Over the Past Two Quarters
Source: Department of Commerce, Goldman Sachs Global Investment Research
Two Near-Term Headwinds: Fading Boosts from Aircraft Production and the Subsidy-Driven Factory-Building Boom
Aircraft equipment investment jumped 500% annualized over the past two quarters, as Boeing — the largest aircraft producer in the US — ramped up production after completing safety inspections. Even though aircraft accounted for a modest share (1.3%) of total capex, this rebound still generated a sizable +6.5pp annualized boost to total capex growth. But the end of this rebound and a temporary hit from the Boeing strike in mid-September are likely to turn aircraft investment into a -0.4pp annualized drag on capex growth in the next two quarters.
Exhibit 2: After Jumping 500% Annualized in Q2 and Q3, Aircraft Investment Will Decline Modestly in the Coming Quarters, Reflecting Normalization and a Temporary Hit from the Boeing Strike
Source: Department of Commerce, Company data, Goldman Sachs Global Investment Research
Manufacturing structures investment subsidized by the IRA and CHIPS Act boosted capex growth by 3pp in 2023, accounting for two thirds of total growth last year. But this boost slowed sharply to 1pp over the past two quarters. Since our mid-year capex update, new projects qualifying for these subsidies have gotten underway, and several existing projects appear to have extended their construction timelines due to worker shortages. We have incorporated these new announcements and timelines into our estimates. Our updated estimates in Exhibit 3 show that investment in manufacturing facilities will decline in coming months, but at a much slower pace than we previously expected.
Exhibit 3: Recently-Announced Projects Qualifying for IRA and CHIPS Act Subsidies Should Cause Investment in Manufacturing Facilities to Decline More Gradually Than We Previously Expected
Source: Department of Commerce, Jack Conness, Company data, Goldman Sachs Global Investment Research
While declining investment in aircraft and manufacturing facilities will weigh on capex growth, we think their impacts will be smaller than feared. The Boeing strike ended on November 4th, so it is no longer an ongoing headwind to aircraft production and investment, and Boeing’s guidance suggests that aircraft investment will resume growing at a healthy pace in 2025 (Exhibit 2).
In addition, the drag from declining manufacturing structures investment should be gradually offset by an increase in equipment investment for those factories. Our sector analysts’ mega project tracker suggests that it usually takes 2 years to build auto manufacturing facilities – though building semiconductor facilities could take longer – and equipment spending typically takes place 2-3 quarters before construction of the factory is complete. This means that an auto manufacturer who started building a factory in early 2023 and aimed for production to start in early 2025 may have begun purchasing equipment in Q2 or Q3 this year. [1]
Incorporating these timelines into our baseline estimates suggests that equipment investment for some IRA and CHIPS Act factories should already be underway (Exhibit 4). Looking ahead, we expect equipment investment to rise gradually in the coming quarters, boosting capex growth by 2pp in 2025 and offsetting most of the drag from declining structures investment.
Exhibit 4: The Rise in Equipment Spending Should Offset the Drag from Declining Structures Investment
Source: Goldman Sachs Global Investment Research
While these two headwinds discussed above are likely to weigh on capex growth in the near term, we see two tailwinds in 2025 that should support strong capex growth.
Tailwind #1: Growing Investment for AI Infrastructure
First, growing investment in infrastructure that supports AI technology will continue to be a meaningful tailwind for US capex in coming years.
It is challenging to estimate how AI-related spending affects real investment growth because companies seldom report investment specifically for AI technology. Even when they do report it, the investment amount is often denoted in nominal terms. To overcome this challenge, we leverage information on data center construction spending reported by the Census and the quantity of hardware sold for data centers reported by Nvidia, AMD, and Intel, to construct our own real investment trackers for AI.
Our trackers, shown in Exhibit 5, suggest that investment in data centers and hardware equipment soared in 2023 following the launch of ChatGPT. Since then, it has continued to grow at a strong pace, reaching $45 billion in 2024Q3. Looking ahead, we expect investment in data centers and hardware equipment to grow at a healthy but slightly slower pace next year, providing a +0.5pp boost to total capex growth.
Exhibit 5: Investment in Infrastructure Supporting AI Technology Will Continue to Grow in Coming Years, Albeit at a Slightly Slower Pace Than in 2023
Source: Census Bureau, Company data, Goldman Sachs Global Investment Research
Tailwind #2: Falling Short-Term Interest Rates
Second, interest rates on short-term loans, which are closely tied to the funds rate, are still elevated and should continue to fall as the Fed gradually lowers the funds rate over time (left, Exhibit 6). This should provide a modest boost to capex growth, especially for medium- and small-size companies that do a larger share of their borrowing at these short-term rates (right, Exhibit 6).
Exhibit 6: Interest Rates on Short-Term Loans for Companies Are Still Elevated and Should Continue to Fall as the Fed Lowers the Funds Rate; Short-Term Interest Rates Matter More for Medium- and Small-Size Companies
Source: Haver Analytics, Company data, Goldman Sachs Global Investment Research
Post-Election Uncertainty Resolution
The resolution of election uncertainty should also provide a modest boost to business investment.
Previous academic studies and our prior work found that an increase in election-related policy uncertainty is associated with a modest decline in business investment growth. The left-side of Exhibit 7 shows that election-related uncertainty came up in company commentary much earlier and more often than in past election cycles. Companies that mentioned concerns over election uncertainty appeared to have started pulling back their investment relative to expectations in Q3, much earlier than prior election cycles and likely reflecting the more rapid increase in uncertainty this cycle (right, Exhibit 7). But with the election cycle now over, we expect the uncertainty effect to fade quickly in coming months.
Exhibit 7: Election-Related Uncertainty Has Come up in Corporate Earning Calls Much Earlier and More Often Than in Past Election Cycles; The Rise in Uncertainty May Have Weighed Modestly on Corporate Capex, but the Effect Should Fade Quickly in Coming Months
Source: GS Data Work, Goldman Sachs Global Investment Research
We also see some room for a boost from so-called animal spirits. Survey-based capex expectations appear to be positively correlated with the share of government under Republican control even after accounting for business’ perceptions of current economic conditions (Exhibit 8).[2] Specifically, our model suggests that a 1pp increase in the share of government under Republican control raises actual capex growth by 0.02pp through this sentiment channel, after controlling for the impact of perceived economic conditions. This implies that the political shift after the election could provide a sentiment boost worth about 1.5pp on capex growth over the next year.
Exhibit 8: Survey-Based Capex Expectations Are Positively Correlated With the Share of Government Under Republican Control, Even After Controlling for Perceived Economic Conditions
Source: Goldman Sachs Global Investment Research
The Restoration of Bonus Depreciation and R&D Expensing
Assuming that Republicans win the House and sweep, as currently looks likely, we expect the corporate tax rate to stay unchanged but bonus depreciation, which is currently at 60%, to be restored back to 100% and R&D expensing to be restored as well (left, Exhibit 9). To estimate the impact on business investment from these policies, we rely on estimates from economic research of the impact of the 2017 tax cuts on investment.[3] The right side of Exhibit 9 shows that these policy changes, combined with the boost from improved sentiment (Exhibit 8), will increase investment growth by 2pp over the next year.
Exhibit 9: Improved Sentiment and Reinstatement of Tax Incentives Will Boost Investment Growth by 2% in 2025
Source: Goldman Sachs Global Investment Research
Tariff Increase
President-elect Trump raised the effective tariff rate by about 1.5pp while he was in office during 2017-2020 and has proposed to raise tariffs further during his second term. An increase in tariff rates could negatively affect investment by raising their input costs, prompting retaliatory foreign tariffs against US exports, and creating uncertainty about further escalation.
Building on our prior framework, we find that higher tariffs weigh on company-level investment through all three channels (left, Exhibit 10). These estimates suggest that higher tariffs in 2019 generated a 1-1.6% drag on aggregate investment (right, Exhibit 10). We assume a similar impact on investment next year because while we expect the tariffs to be larger than last time, they might be less surprising this time.
Exhibit 10: Lessons from the Last Trade War Point to a Potential 1-1.6% Drag on Investment
Source: Goldman Sachs Global Investment Research
Our estimates suggest that the net impact on 2025 capex of tax policy changes, improved business sentiment after the election, and tariff increases is slightly positive. While changes to fiscal policy require Congressional approval and this will take time, we think many companies will anticipate them in advance, so that both the tax and tariff effects should be felt as early as 2025Q1.
Exhibit 11: The Boost from Improved Sentiment and Reinstatement of Tax Incentives Should be Large Enough to Offset the Drag from Higher Tariffs
Source: Goldman Sachs Global Investment Research
Capex Outlook
Taken together, we forecast roughly flat capex growth in Q4, reflecting drags from declining aircraft and manufacturing structures investment. But we expect capex growth to rebound next year and grow about 5.4% in 2025 on a Q4/Q4 basis, driven by rising equipment spending for the new factories, AI spending, lower short-term borrowing rates, improved business sentiment, and the reinstatement of tax incentives.
Exhibit 12: We Expect Capex Growth to Pick Back Up Next Year and Grow 5.4% in 2025 Q4/Q4
Source: Goldman Sachs Global Investment Research
Elsie Peng
- 1 ^ This is also consistent with timelines announced recently by several companies (e.g. TSMC, Ultium Cells, Honda EV battery plant) that aim to start production in early 2025.
- 2 ^ Our Republican control variable weights the White House by one half and each house of Congress by a quarter.
- 3 ^ Gabriel Chodorow-Reich, Matthew Smith, Owen Zidar, and Eric Zwick, “Tax Policy and Investment in a Global Economy,” 2024; Gabriel Chodorow-Reich, Owen Zidar, and Eric Zwick, “Lessons from the Biggest Business Tax Cut in US History,” 2024.
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