The economy is in a bit of a Catch-22. Businesses want to see consumers buy things before they invest, but consumers aren't going to buy things until they have jobs and companies begin to invest. So the question becomes: Who is going to invest first?
Burt White, chief investment officer for LPL Financial, says it has to be companies. "Companies overcut to protect profits," White said in an interview. "[But] they are not doing the things to invest for their future as rapidly as I think needs to happen."
White says the recovery is a like a relay race. The first runner, the central bank, has already run. Now it's time to pass the baton on to corporate America to start increasing investment, taking on new initiatives, hiring people, and launching new product lines.
But companies have remained very cautious on spending because of the uncertain economic outlook and new regulation out of Washington such as health-care and financial reform legislation. So what is it going to take for businesses to really start deploying that cash in droves and when is that going to happen?
"I think it's all about corporate America getting to a point where they recognize that this recovery is sustainable," says White. "A lot of them feel like this recovery's not sustainable; especially in the more consumer-oriented areas."
But while we haven't yet seen a commitment to the recovery from the consumer or financial sectors -- two very important sectors -- we are beginning to see investment and spending within the materials, industrials and technology sectors. The catch is that these sectors rely more on global growth, especially from emerging markets, which are experiencing strong recoveries.
Look no further than Caterpillar
Technology is another prominent sector that's seeing strong recovery and beginning to invest. Microsoft's
So while business spending is beginning to trickle in, White says it might be some time before we see a real acceleration in business spending, and that it will be lumpy when it happens, sector by sector. "Returning to normal business spending levels will take some time, as companies realize that the economic expansion is for real," said White. "As they continue to invest, employ individuals and take on new initiatives, that will eventually jump-start the consumer."
For more analysis from White:
Fool contributor Jennifer Schonberger owns shares of Microsoft, but does not own shares of any of the other companies mentioned in this article. You can follow her on Twitter. 3M, Monsanto, and Microsoft are Motley Fool Inside Value recommendations. Motley Fool Options has recommended a synthetic long position on Monsanto. Motley Fool Options has recommended a diagonal call position on Microsoft. The Motley Fool has a disclosure policy.