On the Road: Three Industries That Should Take Advantage of Accelerated Depreciation

  • by itradmin - Wed, 02/21/2018 - 15:53

ITR Economics has advocated for many years that companies should invest in their future growth at the bottom of the business cycle. Our leading indicator methodology is designed to help firms predict when future cyclical lows and highs in their markets, and their businesses, will occur.

With this concept in mind, we believe there are three economic indicators that represent industries where investment in new capital equipment makes good business sense in 2018: Electrical, Medical, and Civilian Aircraft. US Electrical Equipment New Orders and US Medical Equipment and Supplies Production were both down by more than 5.0% in 2017, while US Civilian Aircraft Equipment Production fell by more than 3.0% last year. However, ITR’s economic forecasts call for all three equipment categories to end 2018 in Phase B, Accelerating Growth. Companies in these markets should be acting now to prepare for more activity by the end of the year. In addition to improving efficiencies and making sure staffing levels are adequate to meet growing demand, firms should consider adding machinery and equipment to raise production capacity.

The accelerated depreciation provision in the recently passed tax reform law should further encourage this course of action. The provision expanded bonus depreciation to 100.0% for assets acquired after September 27, 2017 and placed into operation before the end of 2022; it will begin to phase out by 20 percentage points per year after 2022. Furthermore, the new law expanded the bonus depreciation provision to apply to used property. No longer does an asset need to be brand new to qualify for bonus depreciation, as long as it’s new to the purchaser. As such, companies in sectors facing a rising business cycle trend in 2018 should leverage the expanded bonus depreciation provision to pull the trigger on a major equipment purchase this year.

If you’re interested in learning more about the latest developments in your markets, or in the economy as a whole, please don’t hesitate to reach out to ITR Economics or book one of our highly acclaimed economic speakers.

Alex Chausovsky
Senior Analyst