U.S. CEOs hail rate cut, but hold capital spending
(Reuters 08/21 13:18:31)
By Julie MacIntosh
NEW YORK, Aug 21 (Reuters) - The Federal Reserve's
quarter-point interest rate cut prompted guarded optimism from
Corporate America on Tuesday, but executives said they were
still too spooked by the economic downturn to start spending in
anticipation of a recovery.
Investors had widely expected the cut in the federal funds
rate, a benchmark for short-term lending, as part of its
campaign to stave off a recession and jump-start the economy.
"I don't really feel like we've seen the bottom yet," said
Dan DiMicco, chief executive of steelmaker Nucor Corp. <NUE.N>,
who does not expect a turnaround in the demand-starved steel
industry in the near future. "We're bordering on a recession
right now, and this will help keep that from happening."
The rate cut marked the Fed's seventh such action this
year, and slashed the key federal funds rate to 3.5 percent,
its lowest level since March 1994. But corporate heads weren't
convinced Tuesday's cuts, which included chopping the discount
rate charged to commercial banks, would revive the economy.
U.S. corporate earnings this year are expected to show the
worst decline in a decade, and the manufacturing and heavy
industry sectors have helped lead the collapse in profits.
Makers of everything from autos to electronics and computer
hardware have struggled since late 2000 to balance inventories
with demand, which dropped off more abruptly than many had
forecast as their customers' capital spending budgets shrank.
Joe Magliochetti, chief executive of Dana Corp.<DCN.N> ,
said the auto parts maker had seen hints U.S. industrial
production could improve in the fourth quarter after dropping
about 4.5 percent since it began to slide last summer.
Dana's goal to reduce debt has not changed, even though
rates are lower and allow it to borrow more cheaply, he said.
Magliochetti said Dana would wait a few months for the rate cut
to take effect and see whether it boosts consumer confidence
and capital spending, along with the federal tax cut.
'DELICATE BALANCE'
The interest rate cuts should eventually pull mortgage
rates lower and aid the housing market, once they begin to
filter into the longer-term debt market, said Laurence Hirsch,
chief executive of homebuilder Centex Corp. <CTX.N>
"The business is still good, but we really haven't seen the
last few rate cuts have any significant impact on mortgage
rates," Hirsch said.
Is the Fed's rate-slicing jaunt enough?
"It's a delicate balance right now that the Fed's
wrestling, between cutting rates enough that it has an impact
on business and consumer confidence without going too far to
ignite inflation," said Garry McGuire, chief financial officer
of communications equipment maker Avaya Inc. <AV.N>
Retail chain store sales rose modestly during the past week
on "back-to-school" sales and extra business generated by
federal tax rebates, according to a joint report released on
Tuesday from UBS Warburg and the Bank of Tokyo-Mitsubishi.
The Fed's previous rate cuts have boosted consumer
confidence and taken the edge off an overvalued dollar, said
Jerry Tatar, chief executive of paper and office products maker
Mead Corp. <MEA.N>
While the Fed suggested more rate cuts were a possibility,
Tatar said lower rates alone will not prop up the U.S. economy.
Inventory surpluses must be corrected, he said, and the
market's psychological bruises need time to heal.
"To the extent that we can bring interest rates down, that
would be a component of it," he said.
((--Julie MacIntosh, New York Equities Newsdesk (646)
223-6000, with reporting by Ben Klayman))
REUTERS
S.RT NUE DCN CTX AV MEA TEL.R BUS.R US.R CON.R IND.R STL.R TIM.R ENT.R AUT.R MAC.R USC.R MCE.R FRX.R |
