Where Consumers Fail, Can Businesses Lead?

By MARK GONGLOFF If consumers aren't going to lead a strong economic recovery, businesses might have to. But they mightn't be up to the job. One measure of business demand will come Wednesday morning with Census Bureau data on July durable-goods orders. Economists estimate orders for long-lasting goods made in U.S. factories surged 3% from June. July's jump will likely be due mainly to a surge in orders for Boeing airplanes and the restart of automobile manufacturing after bankruptcy-related closures. Excluding transportation goods, some economists estimate orders rose a milder 0.5%. To gauge business spending, economists further winnow the durable-goods data to one awkwardly named indicator called "nondefense capital goods excluding aircraft." This roughly measures what companies spend on factory equipment and the like. It has edged higher for the past three months after plunging to a 14-year low in the first quarter, though it is still down nearly 22% from a year ago. Part of the decline in durables demand was a massive shelf-clearing by U.S. businesses amid fears of an economic collapse. That inventory clearance seems to be over, which should help the economy. What the economy needs now is a business spending spree that will lead to a hiring boom and rising consumer incomes. Businesses clearly have the cash. In the first quarter, nonfinancial companies had some $14.1 trillion in financial assets, according to Federal Reserve data, or 100.1% of gross domestic product, a record high. But after the 2001 recession, businesses accumulated cash, rather than spending it, because of the spending glut during the tech boom. They mightn't have much appetite for spending this time around, either. They owned more than $4 trillion in equipment and software in the first quarter, about 29% of GDP, not far from the 30% that prevailed during the tech boom. Meanwhile, the nation's factories, utilities and mines in July ran at 68.5% of their production capacity, near a record low, giving them little reason to build out more capacity. At this point, it isn't even clear that business spending will be strong enough to make the recovery self-sustaining. A business-led boom seems unlikely. Email: tape@wsj.com