$300B Capex Lost in Recession Goes
A huge dollar amount has
vanished from corporate America’s investment in capex.
David M. Katz
9, 2016 | CFO.com | US
$300 billion in capital expenditures cut by U.S. companies during the
recession had not been replaced through May 2015, according to a
15-year study of
capex released recently by the Georgia Tech Financial
Capital spending for U.S. non-financial firms with revenues of more
than $100 million dove “significantly during the recession,” falling
to about 3% of revenue in 2009 from 4% in 2008, Charles W. Mulford and
Biro Condé, the study’s authors, write.
Small as it seems, that single percentage point translates to a huge
dollar amount that has vanished from investment in the fixed assets of
corporate America, according to the study. And companies’ reluctance
to replace the spending on their property, plant, and equipment may be
helping to slow the growth of the U.S. economy, according to Mulford.
“There is the same amount of hesitation now that we saw after the
recession. There aren’t the
for growth that we typically see in expansion,” he says. “It’s just
To be sure, by 2014, capex had recovered to about what it had been
before the economic downturn, according to the study. (See Exhibit 1,
below, from the Georgia Tech study.) “However, companies have not
taken steps to increase capital spending to make up for the
recession-induced decline,” the authors assert. “We estimate the
cumulative amount of capital expenditures effectively lost to the
recession to be $296.5 billion.”
In the period since the recession, companies have only raised capex
enough to replenish their existing fixed assets each year, rather than
hiking it to levels that would replace the the $300 billion, says
Mulford, director of the lab and a Georgia Tech accounting professor.
Many companies have been “treading water” in terms of buttressing such
things as their buildings and factories and fleets, he notes, and, as
a result, “companies weigh less” in terms of heavy assets.
“There’s no investment for growth,” he says. “We’re just barely
investing to replace, and we’re not making up for the lean years.”
The study doesn’t address whether corporate infrastructure is
collectively decaying. “But it’s implying that the fixed asset base is
getting older,” Mulford says. “We’re replacing things more slowly than
Where has all the cash that might have been invested in capex gone?
Has it vanished entirely or popped up elsewhere? The findings of the
study solidly support the latter conclusion.
If corporations had wanted to, they could have saved enough operating
cash flow (also known as free cash flow) via capex cutbacks during the
recession to replenish capital spending when things got better,
according to the study. Before the recession, capex made up about 43%
of operating cash flow. During the recession, to preserve resources,
companies slashed capex as a percentage of operating cash flow to a
mere 31% of operating cash flow.
By 2011, however, the ratio of capex to operating cash flow had
recovered to 42% of revenue. The authors note that from 2005 to 2008,
the four years before the downturn, and from 2011 to 2014, the four
years after it, that ratio was quite stable, ranging between 41% and
“Firms are apparently committing consistent amounts of operating cash
flow to capital expenditures. However, any cash conserved by reducing
capital expenditures during the recession has not been committed to
increased spending in subsequent years,” the authors argue. (See
Instead, besides being held in reserve for a rainy day, much of the
cash that might have gone into refreshing company infrastructure has
ended up in stock dividends and buybacks, according to the Georgia
Tech study. To be sure, the metric of dividends and buybacks as a
percentage of revenue dove off a cliff between between 2008 and 2009.
But it shot up significantly through 2014. (See Exhibit 5.1, below.)
Many experts have seen the quality of being “asset lite” as a boon to
companies, of course, enabling corporations to please investors with
their streamlined balance sheets and their purportedly efficient use
On the other hand, companies’ widespread decisions to hoard cash and
invest in dividends and share repurchases rather than pump money into
their hard assets has helped slow U.S. economic growth, according to
That caution may derive from a lack of optimism on the part of the
C-suite, which in turn may be reacting to government tax and
regulatory policies that may slow growth, he adds.
Or it may not. Does the tepid investment in capex reflect the ongoing
technology and automation boom and a resulting falloff in the need to
invest in fixed assets? Mulford wonders.
“Or is it a reflection of underinvestment [indicating that] we really
need to have that move up? That’s a question I really can’t answer.”