Winston-Salem, NC – August 6, 2002 – By George Hager--Business investment is beginning to pick up again, but it seems spotty. Companies in hot sectors such as housing and automaking are investing robustly, but basic industry, which is just turning around, lags in spending.

Examples:Pine Hall Brick, Winston-Salem, N.C.: Brick production has barely slowed since the construction boom peaked in 1999, says company President Fletcher Steele. Brick demand is still so strong that Pine Hall is spending $ 30 million to build a brick plant in Georgia. "We're anticipating the business to remain good," Steele says.

American Axle & Manufacturing, Detroit, which supplies driveline components for Hummers, Chevy Blazers, Dodge Ram trucks and other vehicles, has spent more than $ 1 billion in the past three years to modernize old and inefficient equipment and plant, and will spend $ 250 million more this year, says Chief Financial Officer Robin Adams. That has helped cut the defect rate from 13,000 per million to 31 last year and 11 in the first six months of this year. Riverdale Mills, Northbridge, Mass., makes wire mesh that goes into lobster traps, security fencing and other products. Company President Jim Knott Sr. believes in spending money on technology -- 15% of revenue this year. A competitor that went belly up was a victim of machinery that "was ancient and had low productivity," he says, a mistake he won't make. "We stay out on the cutting edge of productivity," he says. "It pays to spend the money."

It's certainly tempting. A Federal Reserve research paper by economists Jason Cummins and Giovanni Violante concludes that in 1975, new equipment was just 15% more productive than average installed technology. But by 2000, technology was improving so dramatically that cutting-edge equipment offered a 40% productivity improvement -- potentially a huge boost in efficiency and cost-cutting for businesses that could afford the investment. GearTec, Willoughby, Ohio: Business is still too iffy for many companies to make the leap. GearTec is a small company that makes gears that go into industrial machines that, in turn, produce plastic bags, beer cans, auto parts and other items. Company President Jim Weaver had ordered a $ 300,000 gear-making machine for his plant before the Sept. 11 attacks, but in the disastrous business collapse that followed, he canceled the order.

He's glad he did.

Way up the food chain, manufacturers who buy the machines that use Weaver's gears still have too much excess capacity. So while business is improving, they aren't yet buying many new machines, and GearTec isn't yet selling as many new gears as he'd like.

Federal Reserve figures show that manufacturers were using 76.1% of their productive capacity in June. That's the best since August 2001, but still below the 80%-plus typical of a healthy economy. Manufacturers are "saying they're not going to be really convinced (the slump) is over until they're convinced the excess capacity is going to be used on a more permanent basis," says Weaver. "I'm still very, very cautious about pulling the trigger on capital expenditures."

But while business hasn't picked up enough to justify adding a $ 300,000 machine, it is good enough to justify rehiring one of the six workers Weaver had to lay off when things were really bad.

"Enough business has come in that we can't get it out" with a reduced workforce, he says. "The train is picking up speed."

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