Corporate executives woke up to a gloomier business outlook on Tuesday morning.
In recent weeks, economic barometers and talk of recession had already made CEOs wary. But the collapse of financial titan Bear Stearns has intensified the sense that no business is immune and that the financial crisis could touch every business, from makers of construction machines to retailers and telephone companies.
Dyke Messinger, president of Salisbury-based Power Curbers, a maker of machines that pour cement curbs, just got back from a trade show in Las Vegas.
The mood there was “cautiously optimistic”, he says, but that was before the collapse of Bear.
“When you have a shock like this, the question is whether the optimism that was still there will go into the tank,” he adds.
He now fears customers will cut back more than they already have – his US business is off by about a quarter – while the slowdown could now stretch far into 2009.
Even before this latest shock, he had cut his yearly budget for capital expenditures more than 60 per cent to less than $100,000 (Dh360,000).
“We’ve said we’re not going to spend any money unless it’s necessary to keep a machine running,” he says.
The problems on Wall Street come at a time when the economy is already flirting with recession. In the latest signal of underlying weakness, the Federal Reserve has reported that its index of industrial production dropped 0.5 per cent in February, while the New York Fed’s widely-watched Empire State manufacturing survey plunged to a negative 22.23, a low for the index, which measures general business conditions.
For many companies, the mess on Wall Street is just another signal that the US is headed into a prolonged downturn. That, in turn, feeds a growing sense of caution that could make a sharp recession inevitable.
Mark Bissell, president of Bissell Homecare, a privately-held maker of vacuums and other floor-care items in Grand Rapids, Michigan, says his business grew about 10 per cent in the first quarter. During downturns, people tend to stay home more and try stopgap approaches such as shampooing dirty carpets rather than buying new floor coverings.
“But given what I see going on today, if there were a big acquisition opportunity for us – where we’d have to become leveraged – I probably wouldn’t do it,” Bissell says. “Now is not the time to make risky moves.”
The financial crisis has already made it harder to do deals, and it is altering the structure of many of the buyouts that do occur.
Gary Rodkin, chief executive of ConAgra Foods, says the credit crunch means food companies like his won’t be making acquisitions unless they can use cash or stock. That’s bad news at a time when ingredient costs are soaring.”
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