Merrill: Less Capital Spending Likely

The answers to a question included in a recent Philadelphia Federal Reserve Bank survey has David A. Rosenberg, chief North American economist at Merrill Lynch & Co., New York, thinking that expectations for sharply higher capital spending later this year may be misplaced.

Rosenberg notes that, compared with answers a year ago, a smaller percentage of firms (43.8% vs. 58.2%) expects to increase outlays for new plant and equipment during the next six to 12 months relative to their actual spending during the last six to 12 months. Some 15.7% of firms (vs. 12.7% a year ago) expect to cut capital spending, and 40.4% (vs. 29.1% a year ago) foresee no change.

"And when asked what was the most important factor driving capex growth in 2005, the answer was 'replacement' of capital goods, so this appears to be basically all about replacing depreciation and obsolescence-not about building capital stock," states Rosenberg.

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