Eaton CEO: US Economy Needed More Infrastructure Spending In '09

Delays last year in spending money designated for infrastructure construction undermined the effectiveness of the massive U.S. economic stimulus legislation, Eaton Corp. (ETN) Chairman and Chief Executive Alexander Cutler said.

Cutler said front-loading the $787 billion program with tax breaks and other aid with limited employment-growth potential was a critical error in the implementation of the stimulus program.

"The infrastructure money really didn't start rolling until 2010," Cutler said in an interview Wednesday with Dow Jones Newswires. "If this would have occurred a year ago, it could have saved a lot more jobs. The biggest loss of employment for Americans occurred all through '09."

Government planners anticipated spending about 87% of the money designated for road and bridge repairs, water plants, energy conservation projects and other infrastructure work in 2010 and 2011. But Cutler said this spending timeframe recently has been stretched into 2012 and 2013, further diminishing much-needed benefits for a still-weak U.S. economy.

Eaton, a Cleveland-based industrial conglomerate specializing in electrical equipment, automotive and truck components and aerospace systems, has received about $450 million in revenue so far this year from stimulus-funded projects. The company anticipates the stimulus program accounting for an additional $500 million in revenue next year.

Cutler acknowledges that Eaton has been a "big beneficiary" of stimulus spending, particularly on water projects where the company supplies pumps and filters.

"The area where the spending has gone the fastest on the infrastructure side is on water and waste water treatment plants," he said.

Eaton draws about half of its annual revenue from overseas customers. Cutler said government-sponsored stimulus programs in China and Brazil were more effective than the U.S.'s at quickly channeling money to industrial sectors hit hard by the economic recession.

"The lesson of (government responses to the) recession is to move fast, move sudden and move big," he said. "The difference we saw in other countries was the money was invested in programs that created jobs right away and the money got to the street quite quickly."

Cutler added, though, that the pace of the recovery for the U.S. economy is bound to be slower than elsewhere because consumers remain saddled with large amounts of debt that discourage spending. Moreover, access to credit for small business continues to be constrained, holding down investments in equipment and additional employees.

"When you look at the emerging nations, they have the lowest debt levels of any of the countries and as a result have the healthiest economies," he said.

Eaton predicts that it will reach a record profit level in 2012. But the company has raised its outlook significantly this year, prompting some analysts to conclude the company will reach its goal much sooner than 2012.

Cutler declined to comment on a report from earlier this week that Eaton is pursuing the purchase of BAE Systems PLC's (BA.LN) aerospace business.

-By Bob Tita, Dow Jones Newswires; 312-750-4129; robert.tita@dowjones.com

(Anjali Cordeiro contributed to this report)

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