Explore essential strategies for capital investment decisions amid economic uncertainty, focusing on timing, cost control, productivity, and AI implications.
After several years of supply chain disruptions, tariff uncertainty, and volatile demand patterns, skepticism toward economic momentum is understandable.
In spite of the headwinds, B2B spending – as measured by US Nondefense Capital Goods New Orders excluding aircraft – expanded 3.5% in the 12 months through January; growth is accelerating, consistent with other industrial sector indicators. While pricing has contributed to much of this growth, we expect some volume gains over a mild accelerating growth cycle extending into late 2026. This could be a favorable environment for making capital investments, but it depends on your business’s lead or lag time to the macroeconomy and whether you will be able to realize your return on investment before we head into the significant economic downturn of 2030–36.
Leaders who succeed in this cycle will do four things well. They will understand the business cycle, control costs with strategic timing, prioritize sourcing for productivity, and evaluate their exposure to AI.
Business leaders must time their investments relative to the business cycle while tuning out headlines designed to drive clicks, not inform business decisions. First, find out where your business currently sits within the business cycle. The process is easy, and we present it in detail on our website. Whether a business moves in sync with macroeconomic trends or behaves countercyclically will directly impact the optimal timing and best return for investment decisions. If your business moves at the same time as the macroeconomy, the optimum window for increasing capacity before the peak is short. Macroeconomic indicators support expansion through 2026, followed by a plateau in 2027 and more robust rise in 2028. Business leaders can still invest now and during the expansion to prepare for 2026 peak, but it is usually more favorable to time those investments so that they come online ahead of peak demand, not in response to it. For example, it may be prudent to start thinking about capital purchases for the 2028 cycle sometime in 2027.
Buying during an accelerating growth phase is typically less favorable than during the back side of the business cycle. When growth is strong and operational pressure is already high, costs increase because market conditions favor the seller. This leads to:
The back side of the cycle presents the opposite dynamic. As growth slows, buyers gain leverage:
The strategic takeaway is to separate when you buy from when you need the asset. Buy on the back side of the cycle to control cost and deploy ahead of demand to maximize impact. This approach lowers upfront investment and improves long-term returns.
In the current cycle, macroeconomic growth is likely to be mild, meaning buyers may have somewhat more power than in other cycles. As a general rule, sooner is still better if you want to maximize your ROI, especially given expectations for inflation and interest rates. Quarterly US Government Bond Yields will rise to around 4.4% by the end of 2026; Producer Prices will rise around 3.4% in 2026 and continue to rise through at least 2028. In these conditions, waiting for more robust rise in macroeconomic data before moving forward with your capital investment is likely to be more costly, reducing your ROI and making it difficult to capitalize on certain opportunities (such as low-margin, high-volume markets). The longer you wait, the closer the 2030–36 economic downturn will be, making it challenging to turn a sufficient ROI.
Labor constraints and wage pressures are pushing many companies to invest in equipment that improves productivity and reduces reliance on labor. This combination of cyclical strength and structural pressure makes capital investment both an opportunity and a necessity, but not all investments are equal.
Focus on projects that enhance efficiency, protect margins, and improve operational flexibility. Some of the most promising technologies, such as partially or fully automated and AI-integrated equipment or software programs, are still evolving. This means leaders will have to make trickier judgement calls and perform more due diligence when buying than was necessary in the past. Sourcing is a job in itself; ensuring you have employees designated for this is critical to your bottom line in the longer term.
Artificial intelligence is rapidly reshaping capital allocation decisions. US AI capital investments (compiled by ITR from public filings by Microsoft, Meta, Alphabet, Amazon, and NVIDIA) rose 66.9% in 2025 to $560.9 billion, marking another year of exceptional growth. This creates both opportunity and risk for capital goods markets.
On the one hand, AI can compete with traditional equipment spending. As businesses direct more capital toward software, data infrastructure, and AI subscriptions, some spending may shift away from physical equipment, particularly in segments not directly tied to the relatively small group of firms driving AI capital spending. On the other hand, AI requires significant supporting infrastructure. Expansion in data centers, power demand, and network capacity is driving growth in related capital goods markets. US Electrical Equipment New Orders, currently in an accelerating growth trend with a quarterly growth rate of 14.3%, highlight this opportunity.
AI is not a single market, but an ecosystem. Some segments will benefit directly, while others may face indirect pressure. Carefully evaluate whether your business will be impacted by competition from AI or if you can find budding opportunities related to AI infrastructure. Companies positioned to support AI infrastructure may find more durable growth, but overconcentration in a young and volatile market introduces risk.
These principles extend well beyond equipment purchases. They apply equally to investments such as IT system upgrades, new CRM platforms, marketing initiatives, and employee training.
Taking a long-term view, supported by reliable forecasts from ITR, forms a solid foundation for capital decision making. Use the business cycle to your advantage and minimize costs, maximize returns on capital investments, and preserve your margins in the latter half of the 2020s as many firms face increasing margin pressures.
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