I found this interesting articile in Business Week Magazine
Don't count on it, with profits strong and inventories down, capital spending should rally
US Economy as 2007 began, everyone was worried about consumers: How would their spending hold up as the housing slump wore on? Well, consumer outlays turned out to be the economy's star performer in the first quarter, with inflation-adjusted spending growing a healthy 3.8%, measured at an annual rate. Now in the wake of some puny0looking numbers on capital spending, economic anxiety has turned to the business sector. The question there: Will a cooler economy, rising labor costs, and a pileup of inventories cause operations to slam the brakes on their plans to expand operations and hire more workers?
Clearly, the risks surrounding the outlooks for both businesses and consumers remain significant. Completely dismissing them would be foolhardy, especially on the heels of the government's latest report on real gross domestic product, showing the economy grew only 1.3% last quarter, the weakest pace in four years. Nevertheless, some good news from the quarter is helping to alley fears of a business led retrenchment that could seriously damage the economy.
The GDP report showed business outlays for equipment and software rebounded last quarter after falling in the fourth. It said the drag from slower growth in business inventories lessened considerably. Plus, corporate earnings are coming in better than expected. All this bodes well for continued contributions from the business sector to overall demand, production, hiring, and wages in the spring and summer.
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