Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Politics : Stockman Scott's Political Debate Porch -- Ignore unavailable to you. Want to Upgrade?

To: Jim Willie CB who wrote (7475)	9/26/2002 4:04:34 PM
From: stockman_scott	Read Replies (2) \| Respond to of 89467

Despite Sob Stories, Capital Spending Bounces By Rebecca Byrne Staff Reporter TheStreet.com 09/26/2002 02:46 PM EDT Capital expenditures have begun to show preliminary signs of a turnaround, but you wouldn't know it from the slew of negative warnings about the weak spending environment. According to the Commerce Department on Thursday, orders for nondefense capital goods, a gauge of business investment, rose 5.9% in August after a 12.5% jump the prior month. While much of that increase can be attributed to a 47% surge in orders for aircraft, orders were still higher by 0.6% excluding planes. On a year-over-year basis, nondefense orders excluding aircraft are up 2.2%. That's not great, but it is still better than the spending desert companies have described in their quarterly preannouncements. Don't Disappoint "Companies are being rewarded now for not surprising the market on the downside, so everyone's keeping expectations and forecasts low so they don't disappoint," said Stan Shipley, senior economist at Merrill Lynch. "We're still seeing pretty sloppy orders and shipments, but what we're seeing here is the first tentative signs of a recovery in the capital investment cycle." Merrill Lynch is projecting 6% growth in capital spending in the third quarter. In recent weeks, a plethora of firms have attributed their reduced forecasts to poor business spending. On Thursday, Nortel (NT:NYSE - news - commentary - research - analysis) issued yet another profit warning, saying expenditures for wireless networks had deteriorated further. Meanwhile, Redback Networks (RBAK:Nasdaq - news - commentary - research - analysis) blamed an "abnormally weak" summer and order delays for its reduced expectations. On Wednesday, Goldman Sachs lowered its estimates for Siebel Systems (SEBL:Nasdaq - news - commentary - research - analysis), claiming that IT spending continues to disappoint. This disparity between businesses' words and actions on capital spending seems to parallel a similar discrepency in the consumer economy. Over the last several months, consumers have said their confidence in the economy is low, even as they continued to spend on new cars and more expensive homes. There's no question that business investments remains sluggish. Orders for tech equipment edged down by 0.3% in August after a 3.6% gain in July, and computer orders dipped 1.4% after rising 13.2% the prior month. Still, the declines were smaller than they had been over the past year and orders for electrical equipment were actually up 3%, reversing some of last month's 6.4% slide. Page 2 Earnings Growth The numbers aren't wholly surprising. For all the doom and gloom on Wall Street recently, profits have actually started to inch up. Thomson Financial/ First Call is expecting earnings to rise by 7.5% in the third quarter, up from 1.4% in the second. That means companies have more cash to invest. Spending has been restrained, however, by persistent overcapacity in some areas and by a lack of confidence in the economy. " [Companies] have been holding back spending money and holding back on hiring, but at the same time they are increasing the workweek and overtime hours," said Anirvan Banerji, director of research at the Economic Cycle Research Institute. "If you look at the underlying reality, consumer demand is strong." Benerji said the strength of the consumer is forcing some executives to invest. Moreover, he said that as the end of the year draws closer companies will start to think more seriously about how to spend their annual budgets. "They're not plunging into this because they're still insecure, but they are tiptoeing back in." Lynn Reaser, chief economist at Banc of America Capital Management, said she believes the truth about capital spending lies somewhere in between the government numbers and the comments from company managers. "It's not quite as positive as these [durable goods] numbers would suggest but not as negative as some of the company executives would imply," she said. Reaser said excess capacity and limited price increases have forced companies to tighten their reins. But she also noted that firms have become more risk-averse after recent accounting scandals. The declines in the stock market and concerns about Iraq and elsewhere in the Middle East are also adding pressure. Still, she expects capital spending to increase significantly in 2003 as profits continue to improve and political tensions start to fade. thestreet.com