The Return of Capital Spending

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Companies such as American Express account for the second group. The credit-card company, which has suffered as defaults have risen and consumer spending has dropped, spent just $88 million on capital goods in the first quarter—the smallest amount since 2002. But credit quality at the company is improving: Delinquencies, those accounts more than 30 days past due, fell 14% in the latest quarter. With the problems abating, AmEx is plowing more money into the business, some $246 million in the latest quarter. At an analyst meeting on Aug. 5, CEO Kenneth I. Chenault said, "Initially our plan was to reduce investments this year by $1.5 billion.…Our intent is now to restore a portion of these investment cuts during the remainder of the year."

Some companies are allocating the extra money to technology, software, and other equipment that boost productivity. That's especially true for companies that have cut staff to the bone. "Companies can only defer CapEx for so long," says Kenneth J. Bentsen, president of the Equipment Leasing & Finance Assn., a trade group. "At some point, they have to replace their hardware and other equipment." The additional spending should be a boon for semiconductor makers such as Intel (INTC), Samsung, and Texas Instruments (TXN). Roger Wery, a partner at consultancy PRTM, expects global spending for chips to jump 33% next year.

Government largesse is spurring spending as well. The stimulus package offers subsidies for business investments in renewable energy initiatives. "There seems to be a great willingness to approve projects that serve the public interest," says Philip C. Adams, a senior bond analyst at researcher Gimme Credit in Chicago. ITC Holdings (ITC), a utility, is gearing up for green energy demand: It boosted spending to $109 million in the second quarter, a 10% increase over the previous year. "You can't change where the wind blows or where the sun shines," says ITC Chief Financial Officer Cameron M. Bready. And the company has to build infrastructure to use that energy.

Other companies are plowing dollars into new products or markets. J.M. Smucker (SJM) spent $80 million over the last three quarters of its fiscal year, up 29% from a year earlier. Most of the money went to Folgers Coffee, the brand it purchased last November from Procter & Gamble (PG) for $3 billion. Verizon is using extra funds to build telecommunications networks in Europe and India. The company estimates capital spending could top $17.8 billion this year, compared with $17.2 billion last year.

Many companies are spending on overseas operations, where they see stronger opportunities for growth. Campbell Soup (CPB) slimmed down last year by selling off Godiva Chocolatier but plans to increase capital spending by more than 30%. A growing number of the overall investment dollars have been funneled into the company's new Russian and Chinese ventures, markets in which per capita soup consumption is among the world's highest.

A truly sustained global recovery will need more big spenders like ExxonMobil. The oil giant has spent more than $10 billion so far this year, including a large investment in a new natural gas facility in Qatar. Overall, it expects to invest $125 billion globally through 2012. Says Kenneth J. Kremar, an analyst at IHS Global Insight (IHS), a research firm: "We're a ways off from a solid recovery, but the verdict is we're moving in the right direction."

Kalwarski is Numbers department editor at BusinessWeek.

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