WSJ: US Companies Generating ‘Investment Cliff’
Companies in the United States are reining in investment plans at the fastest rate since the recession, posing another hurdle to the lukewarm recovery.
Half of the country’s 40 largest publicly traded corporate investors have announced plans to trim capital spending this year or next, according to a Wall Street Journal analysis of conference calls and securities filings.
Investment in equipment and software, a key metric of corporate health, stalled in the third quarter for the first time since early 2009, The Journal said, and corporate investment in new buildings has fallen.
Executives say they are delaying or slowing investment projects in the face of slowing demand and uncertainty in the lead up to the U.S. elections and around the so-called fiscal cliff of mandated spending cuts and tax hikes set to take effect in January.
Exports, another driver of the recovery, are slowing or declining to key markets such as China and the eurozone as the global economy weakens, The Journal said.
Executives are concerned that failure to resolve the fiscal cliff will push the economy back into a recession. A deal to avoid the cliff could include changes to the tax code that could hurt specific industries.
President Barack Obama called executives over the weekend, including Warren Buffett and JPMorgan Chase's James Dimon, to discuss his ideas to resolve the fiscal cliff. Both parties have pledged to work together to avoid going over the cliff.
"The whole world is looking for stability and clarity from the United States," David Seaton, chief executive of engineering and construction firm Fluor Corp., told The Journal. If the fiscal cliff isn’t resolved, he said, "people will sit on their war chests of cash and return it to shareholders. You'll have a retarded growth trajectory."
A deal between the White House and Congress to avoid the fiscal cliff could give the economy a boost, said Paul Ashworth, chief U.S. economist at Capital Economics. "You might very well get a burst of pent-up demand coming at the start of next year," he said. "Given the timing of the drop-off in business investment, you have to think it's not just a coincidence with the timing of the fiscal cliff."
Meanwhile, top U.S. lawmakers expressed confidence Sunday that they could reach agreement to avoid the fiscal cliff, Reuters reported.
Rep. Tom Price, R-Ga., told CNN his colleagues recognize the need to generate more tax revenue even as he said increases in tax rates would cause job losses.
"The two sides have identified the tax revenue that we're willing to discuss, and now it's time to talk about spending reductions," Price said on CNN.
"What I hear is a perceptible change in rhetoric from the other side," Sen. Dick Durbin, D-Ill., told CNN. "And what it is is an invitation for our side to basically sit down and say, 'What can we do for this country?'"
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