Forward: Business Leaders Signal U.S. Headed Over 'Investment Cliff'
Some of the largest U.S. businesses will drastically scale back their investments over the next year because of uncertainty caused by the increase in America's debt, a lack of spending cuts, and President Barack Obama's insistence on raising tax rates.
According to a Wall Street Journal analysis of securities filings and investor calls, “half of the nation’s 40 biggest publicly traded corporate spenders have announced plans to curtail capital expenditures this year or next.” Businesses are “worried about the future, as profit growth and the global economy slow and the outlook for U.S. government policies remains murky.”
In addition, a Business Roundtable survey that “tracks expectations for sales and investment among its big-company CEOs” found the economic outlook among business leaders was the worst it's been in three years.
The WSJ found U.S. businesses are reducing capital investments at the fastest pace in three years. Exports are down because economies in foreign nations have stalled as "the whole world is looking for stability and clarity from the United States," according to Fluor Corp. CEO David Seaton.
According to the study, business investments as a whole decreased by 1.3% in the third quarter of 2012, while "business investment in equipment and software—a measure of economic vitality in the corporate sector—stalled in the third quarter for the first time since early 2009." Corporate investments in new buildings also declined by 4.4%.
"We have really not seen tailwinds to the economy," OfficeMax CEO Ravi Saligram said. "When that happens, American businesses focus on productivity. You always prepare for the worst and if things get better, that's great."
Companies that have announced they are cutting back on capital investments include Wal-Mart, Ford, Boeing, Intel, and Walt Disney. Caterpillar, after planning an ambitious expansion strategy last year, will also now curtail those efforts.
In technology, Intel has seen a decrease in semiconductor sales. This may be a result of companies like Texas Instruments, a large purchaser of semiconductors, reducing capital investments by 46%. Even Apple is on pace to decrease its capital spending from $10.3 billion to $10 billion.
The energy sector has also been affected, with companies like Devon Energy announcing it will spend "significantly less" in capital expenditures next year.
Even during the 2007-09 recession, businesses still made investments that helped "propel the recovery" and "boost productivity and profits," even when they could not bring on new workers.
The outlook now is even more negative, and "unless the business investment slowdown reverses quickly, it could weigh further on growth prospects and the stock market" and make it more difficult for America's economy to turn the corner.