S&P Report: Slow Recovery for Capital Goods Sector

Oct. 1, 2003
NEW YORK (Standard & Poor's) --Credit profiles of rated capital goods companies have shown modest improvement, and the long-anticipated recovery in the

NEW YORK (Standard & Poor's) --Credit profiles of rated capital goods companies have shown modest improvement, and the long-anticipated recovery in the sector may start soon, according to a report, published by Standard & Poor's Ratings Services. While industry fundamentals remain fairly weak, demand has stabilized, and near-term prospects are gradually improving.

"Although the industrial economy seems to be starting to recover from one of the sharpest downturns in recent memory, some end-markets will inevitably lag, keeping pressure on many rated companies," said Standard & Poor's credit analyst Robert Schulz. "The health of the U.S. industrial economy is a key driver of credit quality for rated capital goods issuers."

A number of favorable factors are helping to boost economic growth, including the recent tax cut, expansionary monetary policy, a continued low-interest-rate climate, notwithstanding recent increases in intermediate and long-term rates, and the brevity of the Iraq war.

As industrial companies finalize their near- to-intermediate-term capital spending plans, of critical importance will be whether anticipated accelerated second-half 2003 growth can be sustained into 2004 and 2005. In the near term, however, pressure on credit quality continues because of still-weak industry conditions and the high financial risk profiles of speculative-grade credits that comprise about two-thirds of the 100 rated companies in the domestic capital goods sector.

The commentary article titled "Capital Goods Sector Facing Slow Recovery Process," was published on Sept. 24, 2003, and can be found on RatingsDirect, Standard & Poor's Web-based credit analysis system, at www.ratingsdirect.com.