Workers at MacKay Manufacturing Inc. will have to be happy with the fancy new piece of equipment being installed this month at the Spokane Valley precision machine shop. Valued at a few hundred thousand dollars, its the only major capital purchase MacKay Manufacturing will make this year, and amounts to about half what the company usually spends.


Liberty Lake-based Telect Inc., the bruised telecom-products maker that spent millions annually as it grew to be one of Spokanes largest employers, this year has budgeted somewhere in the low to mid six figures for capital expenditures, says President and CEO Wayne Williams.


If economic watchers were hoping that businesses would open their purse strings in 2003 with capital purchases that would ricochet around the economy, they might be disappointed. Capital budgets here appear to be down significantly from normal, though there are signs that theyre improving.


I think compared to the last five-year timetable, 2003 is going to be down, says Greg Hansen, a vice president and commercial-lending team leader here for U.S. Bank. Theres still some caution out there. The economy hasnt turned around, fuel prices are high, and theres the threat in the Middle East.


National predictions about capital spending plans vary, but suggest at least a bottoming out. Analysts and researchers had been expecting a turnaround in such spending as early as last falland at least by this yearfollowing two years of declines, but recently were saying that recovery might still be a ways off.


Still, the U.S. Department of Commerce late last month reported that orders for durable goodsitems meant to last at least three yearsgrew 3.3 percent in January compared with December, when such orders fell 0.4 percent.


Other reports also confirm brighter prospects. A study conducted by Financial Executives International and Duke University found that 12 percent of U.S. companies plan to spend ambitiously this year, versus 5 percent last quarter. Most of those polled who said they still plan to spend cautiously added that they expect to resume normal spending either later this year or next year.


The longer-term outlook is even better, said John Graham, director of the study and a professor at Duke, in a release. U.S. corporations have been very conservative about capital spending over the past 18 months, contributing to the economic recession and slow recovery.


Randy Barcus, an economist with Spokane-based energy company Avista Corp., says well-managed companies and gutsy businesspeople should be taking advantage of the current economic climate, in which capital is cheap and their competitors might be weak financially.


This is an amazingly good time to be spending capital to boost market share, Barcus says. The businesspeople who have weathered the storm and can afford these capital expenses will win next year, and already might be winning this year.


He adds, A lot of people are waiting on the sidelines, being overly conservative, overly pessimistic. Theyll end up losing market share.


For its part, Avista has budgeted for its utilities division about 15 percent less than normal for capital spending this year, which should put it between $90 million and $100 million, says spokesman Hugh Imhof. Even that lesser amount, though, is an improvement over last year, when Avistas capital budget was 25 percent less than normal. Were coming back, he says.


Imhof says the company has put off some major projects, including a turbine replacement at Cabinet Gorge Dam, but has continued to spend money on maintenance and safety issues, and is pursuing a number of smaller transmission projects this year. Those more conservative spending plans, he says, parallel the other belt tightening Avista has done in the past year to improve its financial condition.


One needs only to look south from downtown to see the effects of Sacred Heart Medical Centers capital spending plan. The hospital is undergoing a multiyear, $131 million expansion and remodeling project that will include 314,000 square feet of new space and the creation of a childrens hospital. But a closer look reveals that Sacred Hearts nonconstruction capital spendingon things such as equipment and technologyis down. Its 2003 cap budget is about $10 million, or roughly 60 percent of the normal $15 million to $18 million annual expenditure, says Michael Banks, the hospitals chief financial officer. Last years cap budget was even lower, at about $9 million.


Sacred Heart expects nonconstruction capital spending to work its way back to normal over the next few years. Next years capital budget is expected to be around $12 million, and following that back up to $18 million, Banks says.


MacKay Manufacturing, which serves mostly technology-related industries, has held its own as the tech bubble has burst, managing modest annual revenue gains of about 5 percent, but isnt growing at the pace it was when tech companies made their rapid expansionary run-up in the late 1990s and into 2000.


The last year of that growth spurt, MacKay Manufacturing spent heavily on an expansion and new equipmentmore than twice what it usually spends annuallybut in the two following years, 2001 and last year, its cap budget plummeted to about a quarter of normal. This years spending could mark somewhat of a turnaround, though MacKay remains cautious about his industrys prospectswhich, in turn, reflect capital spending by others.


I dont see it changing much at this point, he says of the demand for precision machining. Everybody is saying status quo or less. I dont see anything in the future that brightens my day.


The story is similar at Telect, which also depends on capital spending by its customers, in this case in the telecommunications industry. Capital spending by telecom companies last year was off 43 percent, Telects Williams says. This year, its expected to be down another 11 percent, he says, adding, The good news is were getting near the bottom.


Telects own capital spending will be restricted mostly to buying the minimum equipment and tools required to produce products for customers, including molds and such, says Williams.


Theres not much set aside for anything else, he says. It (the capital budget) is extremely limited, even less than last year.


The company, which has cut its work force by two-thirds in the past couple of years, isnt erecting or expanding buildings anymore. We have excess space right now, Williams says.


Telect is, however, upgrading some of its computers, but its doing that through lease programs that are expiring this year, rather than through capital purchases, he says.


Like many companies, Telect had upgraded computers back before the new millennium, and that equipment now is due for replacement.


Thats the surge Spokane computer-services vendor WindStar Group Inc. is waiting for, says President Jim Barry.


Barry says WindStars business volume last year was off by half from the year before, which in turn was down 25 percent from 2000. This year, Were seeing a slight increase, he says. Its very gradual, but its starting to turn around a bit.


For now, Barry is predicting a 10 percent increase in business this year, though he says that number could rise significantly if a big backlog in computer upgrades that he believes companies have been putting off finally breaks through.


In 2002, we spent a lot of time helping people make do with what they already had, he says. Companies have been putting a lot of things off. That cant go on forever. I expect to see it (end) this year.