Capex Supported By Corporate Cash Flows: We Expect IP Leads Housing This Time

Research evidence excerpt

Capex Supported By Corporate Cash Flows: We Expect IP Leads Housing This Time

USA | Chemicals EquityJuneResearch7, 2026

Chart 1 - Real Manufacturing Construction Vs.Capex Supported By Corporate Cash Flows: We

Expect IP Leads Housing This Time Water Supply & Power Construction

Investment in new construction for manufacturing is down ~20% YoY after

adjusting for inflation, while investment in power generation and water is

modestly positive (Chart 1). US manufacturing capex, meanwhile, is running

~5% above our model (Chart 2): US industrial production has turned positive .

Source: Jefferies

(Chart 3) but capex continues to track cash flows more closely (Chart 3).

Sentiment on capex plans rebounded (Chart 4), a positive for industrial gases.

Cyclical Capex Story Is About Decarbonization Offsetting Cyclical Risks: Capacity utilization was

last reported as near mid-cycle, and likely improves in Q2, whereas EU utilization rates test trough

levels (Chart 5). Broader manufacturing industrial capacity utilization has started to improve in both

regions (Chart 6). Chemical capex plans remain >25% above D&A (Chart 7). Broader cyclical capex

(Charts 9-11) has lifted Materials & Industrials capex/D&A to close to prior peaks, while the second

derivative in cyclical capex is stalling.

Secular Tailwinds: At a higher level, US labor productivity and capital intensity (capital/hour

worked) trends have recently been in the middle of the historical range, but the lag between capital

investment and labor productivity appears to be getting longer over the past two cycles (Charts 12,

13). Nominal growth rates in the capital stock over the past 5 years is in the middle of the range

since 1980 (Chart 14), while the growth in the labor force growth remains weak. This cycle we