NEW YORK - Worries about rising oil prices and a cooling housing market may be crimping consumer spending, but some bet businesses are poised for a burst of buying.
The premise rests on this: Companies are flush with cash, have relatively low debt and are racking up huge profits, so it's the right time for them to build and expand factories and upgrade technology systems. Those arguing this case say the surge in spending should be enough to save the economy from falling into a recession.
That might be wishful thinking. You don't have to scrounge for evidence of the weakening consumer: Shoppers have been rattled by gas prices back near $3 a gallon and the housing market has softened significantly, with sales and new construction slumping.
Goldman Sachs economists estimate that annualized consumer spending grew about 2.5 percent in the second quarter, half of what it was during the first three months of the year.
That pullback already has produced casualties, including Target Corp., the discount chain that many retail analysts had expected to easily weather a consumer-buying downturn. Instead, the Minneapolis-based company recently scaled back its sales projections at stores open at least a year.
All this is bad news for the economy, which grew at 5.6 percent annual rate in the first quarter - the fastest spurt in 2 1/2 years. Forecasters predict growth will slow to about 3 percent or less over the next six months, and the worry is what happens next.
Some think big business could come to the rescue. Among them: Federal Reserve Chairman Ben Bernanke, who testified before Congress this week that capital expenditures should remain strong, given that firms remain in excellent financial condition, and credit conditions for businesses are favorable.
The forecasts on Wall Street support that view. Standard & Poor's puts capital spending growth at around 10 percent to 11 percent in 2006 for companies in the S&P 500 index, adding to the 12.7 percent gain last year that pushed expenditures above $342 billion.
Those findings were echoed in a recent survey of 207 chief financial officers. Nearly three-quarters of them said they expect to increase capital spending over the next year, with the average increase being about 8 percent, according to a survey done by the CFO trade group Financial Executives International and Baruch College's Zicklin School of Business.
But it is hard to ignore what could crimp business buying.
To start, the stock market has been in a funk for the last 2 1/2 months, despite the significant gains after Bernanke's congressional testimony on Wednesday. The S&P 500 and the Dow Jones industrial average still are nearly 6 percent below what they were in early May.
That environment suggests that investors are concerned about the future direction of business activity, and could mean that managers are more cautious about committing their funds, said Patrick Fearon, a senior economist at A.G. Edwards & Sons in St. Louis.
Rising inflationary pressures, much of it coming from surging oil prices, also weigh on corporate decision-making. That's because everything from transportation to production costs are trending up, and companies have little ability to pass along all of their increased expenses to their customers.
There is also the issue of tight monetary policy, which means interest rates are high relative to the not-so-distant past. That will likely continue since the Fed is expected to raise short-term interest rates again when it meets Aug. 8.
Business leaders appear to be showing some concern. The National Federation of Independent Business found that only 27 percent of the 416 small-business owners it surveyed planned on boosting their capital outlays in the next three to six months - the lowest level since March 2003, when the United States headed to war in Iraq.
Goldman Sachs just released its survey of information technology executives, which found a decreased urgency to spend. In its report, the investment firm noted that there was creeping conservatism among those making technology decisions.
Clearly, there is a lot resting on corporate America's next move. But companies ultimately will have to decide what's best for their businesses, not the economy.