CEOs: Rush Of Confidence
businessweek.com
Chief execs are back in a betting mood, buoyed by rising sales and renewed pricing power
All that good news has finally convinced reluctant CEOs that a major expansion is under way. Although a surge in inflation or a sharp rise in interest rates could eventually slow the party, for now they're jumping in with both feet. Newly emboldened, they have finally stepped up capital spending in a big way. Durable-goods orders in March, reported on Apr. 23, rose 3.4% -- nearly five times the expected increase. That came on top of February's 3.8% gain. Capital-goods shipments, at $59.1 billion in March, hit their highest level since early 2001. For the year, Economy.com Inc. expects capital spending to grow a robust 12%. "Customers are coming out of the foxholes," says James V. Gelly, CFO of Rockwell Automation Inc. (ROK ), a Milwaukee maker of computerized manufacturing gear.
STRAIGHT TO TECH. Brisk corporate spending stretches from small to large companies and across industrial sectors. Indeed, despite capacity utilization rates that remain low, many companies that are keen to modernize are leapfrogging old technology to meet lively demand. Owens Corning, a Toledo maker of insulation products used in housing, is spending $30 million to expand capacity 25% at a 39-year-old Jackson (Tenn.) plant that makes fiberglass for roofing shingles. And even as older jets languish in mothballs, low-cost AirTran Airways Inc. (AAI ) is buying new Boeing 737s that are more efficient than its current 717s.
As companies open their wallets, much of the cash is flowing straight to the tech sector. Tech shipments, which have been accelerating for three months, grew 16.5% in March from a year ago, according to Merrill Lynch & Co. (MER ).
Meanwhile, inventories continue to decline, boding well for new orders in coming months. The uptick has bolstered the chip industry: Global sales in February jumped nearly 31% from a year ago, according to the latest data from the Semiconductor Industry Assn. -- the largest rise since October, 2000. And computers are gaining momentum, too: Hardware shipments have topped 20% growth in four of the past five months.
While tech is key, this turnaround is about more than tech spending. It's broad and deep -- and that means more jobs across industries. Nowhere has the mood improved more than in the hard-pressed heartland. Cummins Inc. (CMI ), a Columbus (Ind.) engine maker, is churning out 340 a day for long-haul trucks at its Jamestown (N.Y.) plant. That's up from 240 just six months ago. To keep the line humming, the plant added a second shift on Apr. 25 and now employs some 1,090 workers, up 20% from the beginning of 2003. "We are seeing improved demand in almost all of our end markets," says CEO Theodore M. Solso. |
