A review by the Wall Street Journal of securities filings and conference calls shows that 40% of the largest publicly traded companies are scaling back their investment plans and at the fastest pace since the recession.
This indicates potential trouble for the US economic recovery. The pullbacks are based on weakening demand and rising uncertainty. Corporate executives are delaying big projects to protect profits.
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Companies are afraid that a failure to resolve the fiscal cliff threat will result in renewed recession that will stymie consumer spending, damage investor confidence, and erode corporate profits.
Executives say the entire world is looking to the US to provide stability and clarity. The longer uncertainty remains, the more inclined companies will be to pull back, sit on their war chests of cash, and possibly return it to shareholders rather than invest it for future growth.
If Congress succeeds in resolving the cliff and deficit issues, pent-up demand could drive the economy forward with renewed momentum.
But until then, the Congressional malaise threatens growth prospects and the rally in the equities markets.
The slowdown in capital spending contrasts with the five-year high in consumer spending
. But outlooks for sales and investment among big-company CEOs exhibit the worst forecasts in three years.
The mood seems to be better among small business owners. The National Federation of Independent Business showed an uptick in October in capital spending among small businesses.
Sectors showing the greatest cuts in capital spending among large companies include the energy and semi-conductor industries. Energy, because of low natural gas prices and semi-conductors because of slowing demand.