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Surplus Corporate Savings to Prompt Spending

 

August 25, 2005--Large companies are likely to begin spending billions in surplus savings on goods and services ranging from software to energy efficiency systems and construction services, according to research from JP Morgan and Economy.com.

"We're getting to a point in the business cycle where companies are looking for ways to boost productivity and increase capacity," said Gus Faucher, senior economist with Economy.com.

Faucher expects businesses to ramp up purchases of computers, software, and office space. With office vacancy rates at a three-year low of 15.7 percent, commercial construction should increase, sparking demand for heavy equipment and construction services, he added.

Some businesses may already be feeling the change. An August report from the National Federation of Independent Business found that 23 percent of construction companies plan to increase hiring, and 29 will increase prices, more than any other businesses polled.

Faucher also expects industrial companies to purchase energy saving devices, and petrochemical giants to invest in technology to increase oil extraction and refining capacity.

Bob Mellman, an economist with JP Morgan, said that corporate spending has been increasing at about 10 percent per year, a trend he expects to continue for up to two years. Gus Faucher, an economist with Economy.com, said corporate spending could add as much as .7 percent to the gross domestic profit, and account for as much as 25 percent of all economic growth in 2006.