Matters of Capital Importance

March 12, 2009
The recession is driving many companies to reduce spending and production capacity.

No one is immune to the effects of the ongoing turmoil churning through the financial markets. Not surprisingly, many companies are planning to respond by making fairly sizable reductions to both capital spending and production capacity, according to a survey conducted by the Institute for Supply Management (ISM) of over 300 members with senior-level job titles.

More than three-quarters (77%) of those surveyed say their organizations plan to reduce capital spending in 2009. "Substantial" reductions in capital spending are expected by 35% of those respondents, while 42% say they will slightly reduce capital spending.

Among respondents indicating reduced capital spending plans, 79% selected at least one or more of five options as factors in their decision: worsening sales prospects; economic uncertainty; high cost of financing, difficulty obtaining financing; and high cost of inputs.

More than 42% of respondents say that their organization plans to reduce substantially or reduce slightly production capacity for 2009.

Among respondents indicating plans to reduce production capacity, 90% say that the reduction is expected to be temporary and 10% believe the reduction will be permanent.

Respondents were also asked to rank items in order of significance to their operations. The factor that was reported as having the most significant effect on their operations was reduced demand for the organization's products and/or services.

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