TEMPORARY HEADWINDS HAVE ABATED Capital spending has been through a rough patch, declining on a year-on-year basis in the first half of 2016 for the first time during this recovery. A closer look at the detailed investment spending data suggests that the slowdown has largely occurred in sectors tied to commodity prices and the dollar. Declines in mining and agriculture can be linked directly to the fall in commodity prices, while the decline in manufacturing investment reflects the impact of dollar appreciation on the competiveness of U.S. manufactured goods. With the price of oil recovering and the increase in the U.S. dollar leveling off, these headwinds should be behind us for energy. Over the longer term, there has been consistent under-investment for technology, health care and industrials. We see significant investment opportunities for these sectors. TECHNOLOGY Increased capital spending should benefit many sectors, but the technology sector stands to benefit disproportionately. Tech investment has fallen close to a 15-year low as a share of overall investment - underscoring that the average age of its capital stock is par- Low Capital Spending = Low Productivity Annual Percentage Change worth is at an all-time high, and debt service levels are at historic lows. The recent Fed lending survey also showed that consumer lending demand has picked up sharply across the board, including credit cards and auto loans. U.S. CAPITAL STOCK / TOTAL PRIVATE EMPLOYMENT* U.S. PRODUCTIVITY: OUTPUT PER HOUR 4 2 0 1985 1990 1995 2000 2005 2010 2015 ©BCA research 2016 * INFLATION-ADJUSTED VALUE OF THE NATION'S STOCK OF BUILDINGS, EQUIPMENT AND SOFTWARE 32% Corporate Cash as a % of Current Assets 30% 28% 26% 24% 22% 20% 18% 16% 14% '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 Average Age of Private Fixed Assets Historical - Cost Basis Years 20 16 12 8 2015: 11.4 YEARS '25 '35 '45 '55 '65 '75 '85 '95 '05 '15 37