One of the scariest forecasts I can remember ever appearing in this brand is here. Our annual Capital Spending Outlook projects a 1.1% decrease in capital outlays this year. Admittedly, that's just a small drop, and we've seen this happen before – our April 2009 capex outlook forecast a 2.9% dip.
Remember 2008-2009? It's come to be called the Great Recession. The stock market crashed, banks failed, the housing market collapsed, the economy contracted and unemployment was high.
Remembering things that old is the danger of having done this job for 20-plus years. I hope history does not repeat itself.
Structurally, this country is in better shape now … I think. But the Dow Jones Industrial Average has been on a five-year bull run, and the pessimists say it’s due for at least a correction, like the 36% drop from February to March of 2020. And let’s face it: Whether we come out of the second Trump administration ahead or behind, there’s a lot of uncertainty right now. For better or worse, this is not government business as usual.
Our Capital Spending Outlook is based on the actual financial reports and other public announcements of 31 of the largest publicly traded food & beverage companies. That’s not a huge universe, but these are the big guys, and collectively they do plan to spend about $19 billion on growth this year.
That 1.1% decrease our report forecasts – add to that the historic trend that this collective group of companies always budgets optimistically and then underspends, and there likely will be a bigger drop this year.
The first sign of caution was in our January Manufacturing Outlook Survey. One of the questions we always ask is “Rank first place through 10th place the importance to your plant of each of the following manufacturing issues.” One of the given answers is “food safety” – and that’s been a natural for first place for the 24 years of that survey.
While food safety again got the most first-place votes, as it always does, the 19% who ranked it tops was a worrisome low number. Just behind it at 16% first-place votes was cost control. And when we “weight” the answers, with descending values for second and third place etc. votes, cost control actually had a higher weighted score than food safety.
Our reports from February's Consumer Analyst Group of New York meetings add concern; read the outlooks from General Mills, Conagra, Kraft Heinz, PepsiCo and Nestle, most of which usually have no trouble making their numbers.
One more small piece of evidence: J.M. Smucker paid $5.9 billion for Hostess at the end of 2023, but it just wrote down the value of that acquisition by a billion dollars – telling me that a lot of things are overpriced and in need of correction.
I'm not converting everything in my 401(k) to gold just yet, but, as we said in our January issue, prepare for a bumpy ride this year.