In a recent entry about 2009 Tax Incentives I relayed some interesting tax stimulus information and urged managers to examine the opportunity and decide if the incentive was enough to persuade them to make a capital investment. In this week’s issue of BusinessWeek, the “Numbers” section certainly suggests one of two things. Either companies are taking a “wait and see” approach, or the stimulus just isn’t enough.

According to the “Numbers”, capital spending in the private sector dropped at an annual rate of 38% over the course of the first quarter. While it could be argued that the extended 2009 capital tax allowances may not have had a chance to take effect, this annualized figure still paints a dire picture. Month over month expenditures in every capital sector have continually slumped. With technology lagging the most at a one year negative delta of 28%, and energy leading the snail race with a negative 2% change, it’s clear that companies are still holding on tightly to their cash. While the “numbers” don’t say much about the effects the sluggish credit market and a general consensus of fear have had on capital spending, they do suggest that inflation has played a considerable role. A one-year increase of nearly 3% in prices of capital equipment has put a good deal of downward pressure on mangers’ ability and desire to make capital purchases.

The good news is that first-quarter government spending has increased…right? Wrong. Although Obama-nomics have laid big plans for government investment in infrastructure repair and environment-friendly overhauls, these policies have yet to gain traction. The first quarter real change in government investment was actually -.7%, and spending for road construction has only crawled slightly upward since this time last year.

So, is it all doom and gloom for capital markets? I don’t think so. I believe that over the course of the next quarter or two, the free-fall in private capital spending will be stemmed by a combination of tax incentives, subsiding fears, and opportunistic companies. As for the government, it’s almost a matter of fact that they will begin spending-On what and how efficiently will determine the success or failure of the policies. If you’re not feeling as optimistic, you may want to check out’s internal blog The Case for Optimism. I found it funny that the editor’s memo that plugs the site was conveniently placed on the opposite side of the less-than-peachy “Numbers” page.
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Steve Tatum

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