Cat is far from alone. Across a wide swath of Corporate America, optimism is breaking out again, and the shift in outlook couldn't be more dramatic. A year ago, CEOs of all stripes complained about having "no visibility" about the future of the economy and their businesses. Faced with so much uncertainty, execs shunned expansion. Instead, with the bursting of the stock market bubble, continued fears of terrorism, a spate of corporate scandals, and, finally, the war in Iraq, company honchos hunkered down to concentrate on cutting costs and hoarding cash as they hacked away at capital-spending budgets and payrolls.PARTY TIME. Not anymore. From high-tech powerhouses and Wall Street brokerages to manufacturers in the industrial heartland, companies across Corporate America are cheering their brightening prospects. Thanks to super-easy monetary and fiscal policies, demand for their products and services is soaring. Government data due out on Apr. 29 were expected to show that the economy grew at roughly a 5% annual clip in the first quarter, after expanding at about a 6% rate in the second half of last year.
But corporate execs haven't had to wait for the gross domestic product numbers to know there's increasingly something to celebrate. A strong pickup in demand, combined with cost-cutting and newfound pricing power, have results soaring. Sales of companies in the Standard & Poor's 500-stock index are expected to rise 10.4% in the first quarter, with profits up 25.1%, according to Thomson First Call.
All that good news has finally convinced reluctant CEOs that a major expansion is under way. Although a surge in inflation or a sharp rise in interest rates could eventually slow the party, for now they're jumping in with both feet. Newly emboldened, they have finally stepped up capital spending in a big way. Durable-goods orders in March, reported on Apr. 23, rose 3.4% -- nearly five times the expected increase. That came on top of February's 3.8% gain. Capital-goods shipments, at $59.1 billion in March, hit their highest level since early 2001. For the year, Economy.com Inc. expects capital spending to grow a robust 12%. "Customers are coming out of the foxholes," says James V. Gelly, CFO of Rockwell Automation Inc. (ROK
), a Milwaukee maker of computerized manufacturing gear.STRAIGHT TO TECH. Brisk corporate spending stretches from small to large companies and across industrial sectors. Indeed, despite capacity utilization rates that remain low, many companies that are keen to modernize are leapfrogging old technology to meet lively demand. Owens Corning, a Toledo maker of insulation products used in housing, is spending $30 million to expand capacity 25% at a 39-year-old Jackson (Tenn.) plant that makes fiberglass for roofing shingles. And even as older jets languish in mothballs, low-cost AirTran Airways Inc. (AAI
) is buying new Boeing 737s that are more efficient than its current 717s.
As companies open their wallets, much of the cash is flowing straight to the tech sector. Tech shipments, which have been accelerating for three months, grew 16.5% in March from a year ago, according to Merrill Lynch & Co. (MER
Meanwhile, inventories continue to decline, boding well for new orders in coming months. The uptick has bolstered the chip industry: Global sales in February jumped nearly 31% from a year ago, according to the latest data from the Semiconductor Industry Assn. -- the largest rise since October, 2000. And computers are gaining momentum, too: Hardware shipments have topped 20% growth in four of the past five months.
While tech is key, this turnaround is about more than tech spending. It's broad and deep -- and that means more jobs across industries. Nowhere has the mood improved more than in the hard-pressed heartland. Cummins Inc. (CMI
), a Columbus (Ind.) engine maker, is churning out 340 a day for long-haul trucks at its Jamestown (N.Y.) plant. That's up from 240 just six months ago. To keep the line humming, the plant added a second shift on Apr. 25 and now employs some 1,090 workers, up 20% from the beginning of 2003. "We are seeing improved demand in almost all of our end markets," says CEO Theodore M. Solso.
Many more such jobs could soon appear if CEOs carry through on their freshly minted expansion plans. Fully 50% of executives polled by the Conference Board in an Apr. 5 survey expect hiring to rise in their industries, up sharply from 15.8% in a survey in April, 2003. That's the highest share of CEOs who foresee job growth in their industries since the Board started its hiring survey in 1991.
Another sign of strength: Newspaper help-wanted advertising is up in many cities. At Tribune Co. (TRB
), parent of the Los Angeles Times, the Chicago Tribune, New York Newsday, and other papers around the country, help-wanted advertising revenue climbed 10% in the opening quarter, including a 14% rise in March. Says Tribune CEO Dennis J. FitzSimons: "We're finally seeing the great economic stats that have been reported translate into job creation."
And after years of consumer resistance to price hikes, shoppers seem willing to pay more. Nearly a third of the members of the National Association for Business Economics surveyed for an Apr. 20 report say prices at their companies are rising, with only 8% pointing to declines. And they're not just talking about commodity prices. Consumers are paying more for everything from milk, toothpaste, and laundry detergent to razors and cell phones; all told, prices on an array of 42 widely used product categories rose some 2% in the 12 weeks ending on Mar. 20, according to a survey by Banc of America (BAC
"People feel more comfortable going out and spending money," says Thomas J. Lynch, head of Motorola's cell-phone division, which saw prices jump 16% in the first quarter compared with last year's level.
Still, for all the newfound optimism, today's economy is hardly risk-free. A continued stretch of high oil prices or a renewed terrorist attack could zap confidence. And today's pricing power could quickly turn into tomorrow's inflation. That worry came into focus when the government reported that its Producer Price Index climbed 0.5% in March, much higher than expected. The price hikes "suggest an uptick in inflation for the first time in years," says BofA analyst William Steele. That's why execs are closely monitoring the Federal Reserve's next move on interest rates. If it delays too long in raising rates, inflation could loom. But if the Fed moves too soon or raises rates too quickly or sharply, a lot of the wind could get knocked out of the economy's sails.
Given the weekly drumbeat of strong economic data and the outlook for continued strong corporate profits, however, there's clearly more reason to feel good than to worry. Forget all that talk about lack of "visibility" from a year or two ago. From tech to heavy industry, from apparel to hotels, CEOs say the fog has lifted. Says Hyatt Hotels Corp. Vice-President for revenue management Christopher Elam: "We're the most optimistic we've been in three years."
Too upbeat? Maybe. But after the long, tough slog of the last few years, a healthy dose of optimism can only help propel the strong recovery that is clearly under way. By Joseph Weber, with Michael Arndt and Robert Berner, in Chicago; Dean Foust in Atlanta; Cliff Edwards in San Mateo, Calif.; and bureau reports