Fearing lean times, U.S. companies tighten purse strings

Tue Feb 2, 2016 1:33am EST
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By Caroline Valetkevitch and Marcus E. Howard

NEW YORK (Reuters) - The capital spending slump that originated in the hard-hit energy sector appears to be spreading more widely across other U.S. industries.

Companies cutting or flat-lining their capital expenditures in 2016 outpace those that say they will increase spending by a factor of more than two to one, according to a Reuters analysis.

Companies in industries as diverse - and relatively strong - as healthcare, consumer goods and restaurants are among those tightening their belts in yet another sign that economic growth in 2016 may be anemic.

For instance, McDonald's Corp (MCD.N: Quote), which saw its stock jump 26.1 percent in 2015 and is trading at record levels now, said it would keep capex flat with 2015 at about $2 billion, the company's lowest budget in more than five years.

Drugmaker Eli Lilly (LLY.N: Quote) is holding its capex budget flat and Verizon Communications Inc (VZ.N: Quote) said it plans to cut its budget from $17.8 billion, to between $17.2 and $17.7 billion.

"I think companies are going to be lean and mean and are going to keep the purse strings tight and only spend where absolutely necessary, because cash isn't coming into them," said Kim Forrest, senior equity research analyst at Fort Pitt Capital Group in Pittsburgh.

Companies typically invest more when they feel confident that the economy is improving, so a downturn in capital spending could portend further weakness ahead.

That corporate caution follows another expected decline in revenues in the fourth quarter and data showing U.S. economic growth braked sharply in the quarter.   Continued...