Corporate America Is Slashing Capital Expenditures on Concerns over Fiscal Cliff (CAT, INTC)

Corporate America is worried over impending threat of ‘fiscal cliff’. Indeed, according to Wall Street Journal’s assessment, which was based on securities filings and conference calls, half of America’s 40 largest publicly traded companies intend to slash capital expenditure by the next year or during this year.

Fiscal cliff, which is referred to series of automatic multi-billion spending cuts and tax increases that will take effect on January 1, 2013 if lawmakers in Washington fail to address the issue of country’s massive deficit by the year end, threatens to push the economy back into recession.

The fear and pessimism surrounding corporate America is evident by the pace at which investments have been scaled back— which according to WSJ is fastest rate since last recession. Companies fear that ‘fiscal cliff’ would not only debilitate the consumer spending but also damage investors’ confidence.

Business expenditure on software and investment, a key gauge of economic optimism in the corporate sector, came to a standstill in the fiscal third quarter—a first occasion since early 2009 when the U.S. economy was grappling under recession post subprime mortgage crisis and subsequent global financial markets meltdown. Corporate investments on new buildings have also dried up in the same period.

Adding to the woes is the deteriorating macroeconomic environment in the euro-zone and slowing Chinese economy. Exports to these regions are slowing or falling, prompting companies to either put expansion plans on hold, or slow down the pace of expansion.  Companies say that they are forced to do so in order to protect profits in the backdrop of rising macroeconomic uncertainty and declining demand.

Consider Caterpillar’s (NYSE: CAT) case. At the start of the year, the company said that it expects to invest $4 billion in building and expanding factories in China, Thailand, Texas, North Carolina, Illinois among many other places. Nevertheless, it trimmed down its investments. Last month, the company said that it will not reach its target even as it cut its outlook on investments for the next year.

Intel  Corporation (NASDAQ: INTC), which is witnessing flagging demand for its semiconductors, said last month that it would use its idle factory space and equipment into manufacturing its newest chips thus  lowering its capital spending this year to nearly  $11.3 billion compared to year  earlier projection of $12.5 billion.

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Post Written By: Ed Liston Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications. He is widely quoted in various financial publications on the Internet. When Ed is not writing about stocks, investing in stocks, talking about stocks, or otherwise doing something stock related, he likes to go sailing and fishing in his yacht.