USA Today: Big Company CEOs Are Lacking in Courage to Approve Spending

Friday, 04 Oct 2013 10:14 AM

By John Morgan

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Weak levels of U.S. business investment are like a dead weight stifling wages and job gains for Americans, and part of the problem is due to a stubborn lack of CEO confidence in the economy, USA Today reported.

The Progressive Policy Institute estimated companies have delayed spending by as much as $2.2 trillion since 2008.

The slowdown, according to USA Today, means lower productivity growth, a slower economy and fewer new jobs. Median household incomes are still about $4,500 beneath 2007 levels.

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Blue chips like Home Depot, General Electric, Cisco Systems, IBM, Visa and Johnson & Johnson are all still operating below their 2008 capital spending levels.

Frank Friedman, chief financial officer of accounting firm Deloitte, predicted confidence in the nation's executive suites will pick up only when real job growth materializes.

"What drives confidence is seeing people get hired in the private sector,'' he told USA Today. "CEOs need confidence to make investment."

The newspaper said it still remains a mystery to economists and government officials why executive confidence is not better, since corporate profits are near all-time highs.

Standard & Poor's economist Garth Williams predicted U.S. business investment will decline 1 percent this year and 3 percent in 2014.

"The global recovery will be slower and weaker than people might hope for,'' Williams told USA Today. "Investment adds to a recovery once it's underway, and that's at risk.''

Fitch Ratings offered a slightly less grim estimates of U.S. capital spending (or capex) than S&P, but still expects a decline in 2014. Fitch predicted capex will grow 1.4 percent this year, but fall 1.4 percent in 2014.

According to Fitch, expected decline in capital expenditure in 2014 is driven largely by modest declines in capital-intensive sectors such as energy, utilities, power and gas and telecommunications. Fitch believes that the U.S. corporate sector aggregate capital expenditure levels are normalizing from stimulus influenced "catch-up" post-recession spending to more normal demand-driven levels.

The Wells Fargo/Gallup Small Business Index last month showed small business owners are more optimistic than they were last year.

The survey found U.S. small-business owners' capex plans have been "trending upward" this year, with 26 percent now saying they are expect to boost spending, up from 20 percent at the end of 2012.

"In fact, more business owners say they plan to increase their capital spending than have said so since early 2012," Gallup reported. "Whether they actually do so remains to be seen."

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