U.S. Share Buybacks Hit Record While Capex Lags Pre-Crisis Level

(Bloomberg) -- U.S. companies bought back their own shares at a blistering pace in the third quarter,  dwarfing the amount spent on key investments to help generate growth.

Share repurchases more than doubled from a year earlier for S&P 500 companies to an all-time high of $234.6 billion, according to preliminary data released Tuesday from S&P Dow Jones Indices. Meanwhile, capital expenditures increased 21% to $189 billion, which is still down 3% from the final three months of 2019 before the pandemic shutdown the economy.

“Borrowing is inexpensive for corporations right now, so financing their capital spending was expected -- but those expectations still haven’t been met,” Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, said in an interview. “Part of the reason could be related to the pandemic, as a shift in consumer demand has fueled lots of uncertainty for businesses and makes it difficult for companies to plan ahead.”

Companies typically ramp up spending on factories, equipment and other capital goods as they grow more confident in their financial outlook and the economy. Given uncertainties about the outlook, buybacks have been a way for businesses to return cash to shareholders and have helped propel U.S. stock indexes climbing to multiple records this year. 

Markets have also benefited from the monetary and fiscal support that the Federal Reserve and policy makers in Washington put in place to help support the economy in the pandemic. 

Apple Inc., Google parent Alphabet Inc. and Meta Platforms Inc. (formerly know as Facebook) were the biggest buyers of their own stock in the third quarter, repurchasing a total of $48.1 billion shares, according to S&P Dow Jones Indices. Total buybacks surpassed the previous record of $223 billion set in the fourth quarter of 2018, the data show.

While buybacks surge, robust capital investment will be key to the long-term economic recovery after the spending boost from business reopenings and fiscal stimulus fades. The Fed said this month it plans to accelerate the process of winding down a bond-buying stimulus program and signaled interest rates are set to rise next year, which would make it harder for corporations to borrow cheaply or refinance more expensive debt.

“Planning ahead is difficult for companies because they’re unsure of their tax structures,” Silverblatt added. “But as consumer spending continues to grow, companies will have to increase production if demand is high, and that will force an increase in capital spending.”

©2021 Bloomberg L.P.