Corporate Spending Freezes

Evidence of a corporate spending and investment freeze is mounting nationwide across all industries.

The head of General Electric, Jeff Immelt, stated on Monday that he sees economic uncertainty in the fourth quarter causing "an investment pause" that has crimped the company's sales.

Immelt, speaking at the company's annual outlook meeting in Manhattan, reduced his 2012 forecast for organic revenue growth for GE's industrial business by a small amount. GE is now calling for about 8% growth this year, from a 10% forecast barely two months ago.

"Clearly, there has been an investment pause in certain industries," Mr. Immelt said. "We've definitely seen a slowdown in the fourth quarter."

He said ongoing jitters over the so-called "fiscal cliff" of tax increases and government spending cuts contributed to the trend.

His statements come on the heels of a new report showing that stocks remain depressed due to frozen spending across the board. The S&P 500 is trading around 14.4 times profit over the last 12 months which is roughly 12% below the historical average.

Low valuations are being caused because expenditures by Standard & Poor’s 500 Index companies are falling. The trend will continue into 2013 with a 1.3% drop after three years of growth, according to more than 10,000 analyst estimates compiled by Bloomberg.

Analysts following companies in the S&P 500 estimate that capital spending will decline 1.1% from a year ago to $17.2 billion in the second quarter, 0.6% to $17.5 billion in the third quarter and 7.4% to $18.2 billion in the fourth.

The last time capital spending declined was at the end of 2008, just before stocks slumped to a 12-year low.

With little reprieve on the political front, there is little choice for companies except for a conservative and defensive stance on capital investments.

“In an environment where the economic and political outlook is highly uncertain, it is hard for executives to make investment decisions,” said Abi Oladimeji, who helps oversee $4.3 billion as head of investment strategy at Thomas Miller Investment Ltd. in London. “The danger is that we see policy errors, which could undermine equity markets and the broader economy.”