S&P Industry Report Card Released on Capital Goods

NEW YORK (Standard & Poor's) - The capital goods sector in the United States continues to be very weak, as the timing and scope of the long-expected recovery is still uncertain, according to a report published by Standard & Poor's Ratings Services. Companies have been reluctant to commit to big capital spending because of over investment during the 1990s, continued profit pressures, and the war in Iraq.

Industrial production, one of the two key determinants for capital spending, is starting to show positive year-over-year percentage improvement.

Nonresidential construction spending, the other key factor, is expected to be down in 2003, after having fallen more than 20% from an early peak in 2001.

"Non-defense capital spending has been gradually improving," said Standard & Poor's credit analyst Robert Schulz. "However, most of this spending is for replacement rather than capacity expansion."

Depressed industry fundamentals and the weak financial profiles of the speculative-grade credits that comprise about two-thirds of the rated companies in the domestic sector are continuing to pressure credit quality.

"Industry Report Card: Capital Goods" is available on RatingsDirect, Standard & Poor's Web-based credit analysis system, at www.ratingsdirect.com.

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