Category: News

Manufacturers in the U.S. are more optimistic about sales next year and plan to ramp up spending on new equipment, signaling factories will keep leading the economic recovery, according to a survey by the Institute for Supply Management.

Purchasing managers at factories anticipate sales will grow 5.6 percent next year and business capital investment will jump 15 percent, the Tempe, Arizona-based group’s semiannual forecast showed today. Sales and spending will increase at a slower pace among service providers that account for about 90 percent of the economy.

Manufacturers “are optimistic about their organizations’ prospects as they consider the first half of 2011, and they are even more positive about the second half,” Norbert Ore, chairman of the group’s factory survey, said in a statement. “While 2010 has been a year of recovery in manufacturing, our forecast sees improvements in both investment and employment.”

The gains in sales and investment exceed projected increases in payrolls, indicating the labor market will be slow to improve. Factory employment is projected to increase 1.8 percent in 2011, compared with a 0.3 percent rise at service industries.

A weakening dollar and demand for American-made goods in faster-growing markets such as China and Brazil are lifting growth at factories, driving the recovery. Holiday-season sales gains at retailers indicate services also are contributing to the expansion.

Revenue is forecast to rise 3.4 percent at service industries, while capital spending is projected to increase 3.7 percent.

More Optimism

Services “have a higher level of optimism about the next 12 months than they had last December for 2010,” Anthony Nieves, chairman of the group’s services survey, said in a statement.

Earlier this month, ISM figures for November showed manufacturing grew for a 16th consecutive month, and service industries expanded at the fastest pace in six months.

Even so, the world’s largest economy isn’t growing quick enough to bring down unemployment. The jobless rate rose to seven-month high of 9.8 percent in November and payroll gains slowed to 39,000 from 172,000 in the previous month, a Labor Department report showed on Dec. 3.

Today’s survey showed manufacturing revenue will post a 7.9 percent increase in 2010. Sales at service companies will rise 0.2 percent this year, the group said.

Retail sales rose in November by the most in eight months, led by Abercombie & Fitch Co. and J.C Penney Co., as shoppers took advantage of discounts, particularly during the Thanksgiving weekend. Overall, same-store sales at the more than 30 chains tracked by Retail Metrics Inc. increased 5.3 percent, beating analysts’ estimates.

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

What is the Section 179 Deduction??

Most people think the Section 179 deduction is some arcane or complicated tax code.  It really isn’t, as the following will show you.

Essentially, Section 179 of the IRS tax code allows businesses to deduct the full purchase price of qualifying equipment purchased or financed during the tax year. That means that if you buy (or lease) a piece of qualifying equipment, you can deduct the FULL PURCHASE PRICE from your gross income. It’s an incentive created by the U.S. Government to encourage businesses to buy equipment and invest in themselves. It is sometimes referred to as the “SUV Tax Loophole” or the “Hummer Deduction” because many businesses have used this tax code to purchase qualifying vehicles (like SUV’s and Hummers.)

Essentially, Section 179 works like this:

When your business buys certain pieces of equipment, it typically gets to write them off a little at a time through depreciation. In other words, if your company spends $50,000 on a vehicle, it gets to write off (say) $10,000 a year for five years (these numbers are only meant to give you an example.)

Now, while it’s true that this is better than no write off at all, most business owners would really prefer to write off the entire equipment purchase price for the year they buy it.

In fact, if a business could write off the entire amount, they might add more equipment this year instead of waiting. That’s the whole purpose behind Section 179… to motivate the American economy (and your business) to move in a positive direction. For most small businesses (adding total equipment, software, and vehicles totaling less than $500,000 in 2010), the entire cost can be written-off on the 2010 tax return.

For businesses adding even more than $500,000, the write-offs are still substantial. See the following graphic for an example of the savings that is currently available to you after the ‘Small Business Jobs and Credit Act of 2010’ passed in September 2010.

Limits of Section 179 (updated as of Sep 27, 2010)
Section 179 does come with limits – there are caps to the total amount written off ($500,000 in 2010), and limits to the total amount of the equipment purchased ($2,000,000 in 2010.) The deduction begins to phase out dollar-for-dollar after $2 million, so this makes it a true small and medium-sized business deduction.

Click HERE for full details on Section 179.

Click HERE for FAQs on Section 179.