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US capital spending set to rise in 2016: Citi

[NEW YORK] Capital spending by US non-financial companies, excluding energy firms, is expected to accelerate in 2016, despite uncertainties surrounding Fed policy and Britain's vote to leave the European Union, Citigroup said.

Citigroup's June review of more than 700 non-financial companies showed capital spending is likely to increase by 5.3 per cent this year, up from the 4.2 per cent pickup projected in February. Only the energy sector is expected to lower spending this year.

Overall, this year would mark the eighth straight year of growth in capital spending.

"Despite fears of a reduction in capital spending given Fed policy uncertainty, concerns about global economic growth and even recent Brexit driven worry, data collected from companies suggests a better environment," Tobias Levkovich, Citi's US equity strategist, wrote in a note to clients.

Citigroup's study, which was conducted in June after the Brexit vote, involved reviewing corporate guidance issued by non-financial US companies.

According to the review, capital spending in the energy sector is expected to drop 30 per cent in 2016, with exploration and production companies' capex set to plunge 51 per cent.

Capital expenditure at technology companies is expected to increase 18 per cent, with software companies expected to spend 27 per cent more this year.

Hardware and equipment companies are expected to spend 15 per cent more as they invest in cyber security, cloud and virtual and augmented reality.

US consumer discretionary companies' capex is expected to increase 16-17 per cent this year, helped by a 30 per cent boost from media companies.

REUTERS