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Thursday, January 3, 2013

Some business leaders cool to deal

originally appeared in USA Today:

Wall Street investors cheered the deal to avert the fiscal cliff — but some executives who invest in job-creating plants and equipment gave it a much cooler reception.

As President Obama prepared to sign a compromise bill that raised taxes half as much as he once proposed, while postponing scheduled cuts in spending, Honeywell's CEO said the move to cut the deficit wasn't enough to get him writing checks again.

That's one reason the economic outlook for early 2013 is still modest, even as the stock market celebrated the deal, pushing up the Dow Jones average more than 300 points to its highest close since December 2011.

Nothing is going to change from where I was two weeks ago, he said, a leader of the Fix the Debt coalition of chief executives lobbying Congress to kick-start negotiations on issues from corporate taxes to entitlement spending. We'll still continue with a plan that's diminished from where we were six or seven months ago.

The fiscal cliff deal is too incomplete to get businesses investing much again soon, business groups say. The package delays spending cuts that had been scheduled to take effect this week for two months.

The bill did not raise the government's borrowing limit, setting up a potentially crippling fight about raising the debt ceiling next month, Cote said. When Congress balked at raising the limit in August 2011, that contributed to a 20.7% drop in the stock market between July and October.

President of the Committee for a Responsible Federal Budget, said it's nearly inconceivable that the bill will release pent-up demand from businesses that want to buy equipment and software, and build or expand buildings.

The deal falls well short of what's needed, she said.

A slowdown in business investment was one of the biggest reasons the recovery slowed in mid-2012, according to government data, and it was highlighted by economists as proof that fear of the fiscal cliff was hurting business. Investment in equipment and software dropped 2.6% in the third quarter after rising 18.3% in the same stretch of 2011.

But some companies won't recover confidence until they know what happens to federal spending.

Until the possibility of automatic spending cuts, or sequestration, is eliminated, it's still hanging over our industry, according to a spokeswoman for Lockheed Martin, the nation's biggest defense contractor. Until it is, it stifles investment in plants, equipment, people and (research and development).

The director of tax policy for the National Federation of Independent Business said the measure's provision extending an existing tax break for investment in equipment up to $500,000 could bolster investment by smaller businesses. That's a provision business owners tell us they use, and it's a good incentive, he said.