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CEOs Who'll Get No Kick from Stimulus

By Howard Gleckman In early December, I spent a few hours chatting with the chief executives of a dozen midsize U.S. companies. In this informal setting, the agreement was that I wouldn't quote them by name. In turn, these CEOs spoke candidly about the U.S. economy and Washington's response to both the slowdown and to terrorism.

Bottom line: Most of these CEOs think the economy may have reached its low point. They say their business isn't getting worse, but it isn't getting much better, either. Many have already gone through a round of layoffs. Happily -- and somewhat surprisingly -- they don't expect more.

Here's one more thing they don't expect: Any real stimulus from the tax and spending package that Congress and President Bush have been arguing about for three months. They're deeply skeptical that it will do much to boost either new investment or consumption.

"JUST WIN." That's not to say that they believe Washington has no role to play in jump-starting the economy. The consensus in the room was that Congress and, especially, Bush must restore a public sense of confidence and security before growth can really rebound. True, they see a slowdown driven largely by the usual factors of too much unsold inventory and too many companies operating far below capacity. But post-September 11, they don't believe the fix will be found in either monetary or fiscal policy. For most of these execs, the key to the nation's economic future lies in ending terrorism and getting on with life. "Just win the damn war," said one CEO.

These chiefs operate a broad mix of companies, ranging from telecommunications outfits to makers of packing materials to executive search firms. Some are startups, others have been around for decades. Most do business overseas as well as in the U.S. All these top managers are interested enough in public policy to take the time to come to Washington and meet with top congressional and Bush Administration officials.

What's most striking is their deep cynicism about the value of a stimulus package. While business lobbyists continue to beat the drum for a bill, these execs believe that the measures being debated are poorly targeted, as well as too small and too delayed to make any difference.

TIGHTER BANKS. I asked the CEOs if a new temporary tax break for business investment would encourage them to boost capital spending. Not a single one said it would. One said it might get him to accelerate some spending from, say, 2003 to 2002. But it wouldn't increase his overall level of investment by a dime. Another said until demand picks up, the only investments he's making are for cost-cutting purposes. And he's going to make those regardless of any tax breaks.

The bigger problem for many of these companies isn't the cost of capital but its availability. One CEO said bank credit is tightening noticeably, and it's now easier and cheaper to borrow in the public markets than to get a bank loan. For these execs, who have both access to the bond markets and the ability to finance operations out of cash flow, that's not much of a problem. But for smaller outfits, restrictive bank lending -- driven, perhaps, by post-September 11 uncertainty -- could prolong a slump.

What do these CEO say will snap the U.S. out of the economic doldrums? The gradual impact of a year of Fed rate cuts. Sharply lower oil prices. And a slow uptick in demand. When will all that happen? They still think sometime next year. But they're by no means confident about that. All they're sure of is that the fiscal stimulus that has attracted so much attention in Washington won't help a bit. Gleckman is a senior correspondent in BusinessWeek's Washington bureau. Follow his views every Tuesday in Washington

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