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To: MythMan who wrote (236408)	4/19/2003 8:43:32 AM
From: orkrious	Read Replies (1) \| Respond to of 436258

I was surprised to see this in today's local paper War's end unlikely to revive economy Companies seek assurance customers will keep buying April 19, 2003 freep.com BY RACHEL BECK ASSOCIATED PRESS NEW YORK -- Those hopes for a postwar surge in corporate spending are fizzling fast. Businesses aren't ready to put money toward capital goods yet. It comes down to this: When you buy new forklifts, build factories or upgrade technology, you want to see solid returns on your investments. But it's hard to guarantee any payback with such uncertain customer demand. So companies feel paralyzed, at least for now, and that's bad news for the fragile economy. Corporate spending gains are key to getting the economy's engines roaring again. Capital spending tumbled with business confidence in February. That was disappointing because things had started looking up last summer after a two-year slowdown. Much of the blame for the recent spending curbs went to executives' uneasiness about the prospects of war. They couldn't plan to buy when they didn't know how long the battle would last. But now, with the fighting pretty much over, it appears war wasn't the only reason spending stalled. Volatile stock markets and economic weakness remain the more crucial components in business leaders' decision-making. With so much uncertainty looming, they worry that they won't be able to get out of the investments what they put in. "We found that the cost of capital exceeds the return on capital" in many sectors, David Rosenberg, chief North American economist at Merrill Lynch, said in a recent report. "So where is the incentive to embark on a capital investment spree right now -- or in the near future?" A recent survey by the Business Roundtable, an advocacy group of chief executives from some of the nation's biggest companies, found that 27 percent expect to reduce their capital spending over the next six months. Fifty-five percent say they will spend what they do now, which in many cases is down drastically from just a few years ago. Microsoft provided some evidence this week of the troubling outlook. The world's largest software maker said customers -- computer manufacturers and companies investing in new technology -- don't anticipate an upturn in demand. The company, therefore, cautioned that its earnings going forward might fall into the lower end of Wall Street's estimates. The warning came as a bit of a surprise given that Microsoft holds a monopoly on PC software and has weathered the downturn in the technology sector. "There are no clear indications that the demand for PCs or corporate IT spending is improving and, hence, our expectations are not dependent on an improved macroeconomic environment," chief financial officer John Connors said during an earnings conference call. And high-tech isn't alone in clamping down. Plenty of airlines, hotels and telecommunications firms and manufacturers have reduced their expected capital spending. The big concern now is how the spending freeze will affect the overall economy. Many economists based their postwar bullish growth scenarios on higher capital spending. And few anticipated any pullback by consumers. Strong consumer buying largely offset the steep decline in corporate spending in recent years. But now there are concerns that consumers' spending pace could slow due to massive job cuts. Without consumers driving the economy as they have before, there is an increased need for business spending to kick in. Complicating matters is that companies might keep their spending on hold until they have clearer signs that consumer spending hasn't faltered, said Wachovia Securities global economist Jay Bryson. So business waits on consumers, and consumers wait on business. The smoke from the war is gone, but the economic picture is no clearer.