EoW July 2012

Transatlantic cable

Mr Levkovich summed up in a phone interview with Businessweek : “Despite a fair amount of uncertainly related to China and Europe, there is a willingness among businesses to invest when it makes sense to do so, which is quite encouraging.” For his part, Mr Philips pointed out that the increase in capital expenditure should also bode well for the employment picture in the US, since increases in capital spending tend to be accompanied by hiring. He wrote: “After all, if you’re going to buy a new piece of equipment you’re probably going to need someone to operate it.”

Business spending

After years of hoarding cash, American companies show signs of loosening the purse-strings

Matthew Philips, an associate editor for Bloomberg Businessweek , noted one of the many ironies of the last few years in the United States: the Federal Reserve lowered interest rates in order to (among other things) compel businesses to spend their cash rather than save it. And yet, Mr Philips wrote: “The pile of corporate cash has grown astronomically in the face of interest rates kept near zero. According to Moody’s [ratings agency], US corporations were sitting on $1.24 trillion of cash at the end of 2011. That’s more than 8 per cent of the entire US economy.” Accounting for nearly a quarter of the giant stash are just ve companies – Apple, Microsoft, Cisco, Google, and P zer (pharmaceuticals) – with a combined $276 billion in cash and cash equivalents. While some rms have been putting some cash to work, more than half of the grand total has been driven overseas by the 39 per cent US corporate tax rate, the world’s highest. And much of the outlay at home has gone toward such items as dividend hikes and stock buybacks, with scant stimulating e ect on the economy. But according to Mr Philips some recent data suggest that change is in the air (“Companies May Finally Be Starting to Spend That Cash,” 4 th April). † The latest survey of small rms by the National Federation of Independent Business shows that 57 per cent of rms have made a capital expenditure over the six months through 31 st March, the largest percentage since March 2008. Much of that appears to be going toward big-ticket items. A combined 63 per cent of rms report spending on new equipment and vehicles. Nineteen per cent of rms reported having spent $10,000 to $49,000 over the six months, while 11 per cent said they spent $100,000 or more. † A survey by American City Business Journals of 2,200 executives of companies with up to 499 employees found that they expect to increase spending by 5.9 per cent this year – and that may be low. Last year’s study of the same respondents prompted the estimate of a 4.7 per cent rise, when in fact spending increased 15.3 per cent. † In a 30 th March report, Citigroup’s chief US equity strategist Tobias Levkovich pointed to a “clear acceleration” in the capital spending intentions of the 735 non- nancial public companies covered by Citi’s equity research analysts. “[It is] very clear that business has stepped up, even from levels considered in early January,” he wrote. “Indeed, capital spending intentions are now up almost 11 per cent for 2012 versus 2011, as compared with the previously planned 6 per cent increase.” Businessweek cited three hopeful indicators:

As the world’s economic outlook brightens, IT spending is expected to accelerate this year

Although it dropped its forecast for IT spending growth in 2012 from 3.7 per cent to 2.5 per cent, the information technology research and advisory company Gartner Inc (Stamford, Connecticut) says the outlook for global IT spending is improving. The lowered growth rate estimate was said to re ect economics – in particular the continued strengthening of the US dollar versus other currencies – rather than a drop in real IT spending. When the Gartner analysts looked at worldwide IT spending in constant US dollars, the true rate was 5.2 per cent for the year, up from a previous forecast of 4.6 per cent. “The euro zone crisis has abated somewhat, fears about the Chinese real estate bubble have waned, and the HDD [hard-disk drive] shortage, while serious, has not caused signi cant disruption to hardware system spending,” Richard Gordon, research vice president at Gartner, said in a 5 th April post on the rm’s blog. In his view, the somewhat brighter outlook is prompting consumers and enterprises to spend on IT products and services. As noted by Je rey Burt at eWeek, the massive ooding last year in Thailand, while severe, did not impact the hardware market as badly as feared at rst. He pointed to numbers released 3 rd April by market research rm IDC (Framingham, Massachusetts), showing that HDD unit shipments worldwide fell only 4.5 per cent in 2011. E orts to stabilise the industry in Thailand and in tsunami-ravaged Japan will likely succeed in returning production of HDDs and related components to pre-disaster levels in the second half, IDC said. While Gartner is expecting US government IT spending to be at in 2012, other areas should see strong growth. The small and mid-size business (SMB) market – which Gartner analysts said accounts for about 25 per cent of all enterprise IT spending, should hit $874 billion this year, and grow to $1 trillion by 2016. The SMB space will outperform other markets over the next few years, thanks to demand for enterprise software, the analysts said.

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EuroWire – July 2012