(FORTUNE Magazine) – Du Pont boss Chad Holliday, an energetic Tennessean who can schmooze with the best of them, was recently making the rounds at a meeting of the Business Council, an elite group of about 100 of the country's top CEOs. For the past two months Holliday had seen tentative signs that some industries were picking up--or at least stabilizing--so he was curious. How were his counterparts feeling? Pretty darn glum, it turned out. "I think maybe we were feeling a tad better--and I mean a tad," says Holliday. "They might be slightly less pessimistic, but that's about it."

Wait a minute. Sure, we had a teensy-weensy recession, but it's over now. The economy grew at an almost 6% annual pace in the first quarter, productivity surged 8.6%, and consumers are still shopping as if it were 1999. But you wouldn't know it from the big frown corporate America is wearing.

The problem with downbeat CEOs is that they don't spend. So unless their mood improves--and fast--the recovery may not last. Consumers have been carrying the economy on their backs for the past two years, but without a robust corporate sector, that can't go on forever. "What happens to capital spending is at the heart of whether the economy is on the right course or whether it still has more excesses to purge," says James Glassman, chief U.S. economist at J.P. Morgan Chase.

Unfortunately, what's happening right now isn't all that heartening. After steadily declining last year, capital spending has just about stabilized. There are indications that business investment this quarter may be inching up, but it's unlikely to set any records. So what, exactly, is worrying our corporate leaders, and what's it going to take for them to stop being such tightwads and start spending again?

To find out, FORTUNE sat down with CEOs from three very different companies: Du Pont, UPS, and Best Buy. Du Pont operates in industries as diverse as chemicals, housing, and health care. UPS is in the package-delivery business. Best Buy sells electronics and computers to consumers. Not surprisingly, they have had contrasting experiences of late. For instance, Du Pont has just undergone a major restructuring aimed at getting the 200-year-old company growing again. UPS has emerged as the global leader in its field, but it has seen its earnings slow along with the rest of the economy. Best Buy, meanwhile, has delivered fast earnings growth for the past five years, thanks largely to the boom in consumer spending.

For all their differences, the companies' CEOs have strikingly similar views about the economy. They're confident that business will get back on its feet at some point, but they believe it won't be this quarter or even next. In fact, they're reluctant to put a time frame on it. And when the expansion finally does get under way, these CEOs expect that it will be a fairly anemic one. Now on to the particulars.

At Du Pont, the country's oldest chemical company, the challenge for Holliday is to develop new products and markets. So spending on R&D is crucial, and Holliday hasn't curbed that a bit. But he has cut back on other things. The reason: too much uncertainty in the world. "Predictability about the future is probably the most important thing for business investment," he says. "We need to feel there aren't a lot of factors in the world that could change, and we need to feel we understand what our customers are facing."

If you don't like uncertainty, 2002 just isn't going to be your year. Start with the home front: Corporate earnings are wobbly following a string of restated results. The stock market is directionless, oil prices are rising, and concern is growing about more terrorist attacks. Farther afield, the Middle East crisis is still raging, Argentina remains troubled, the war in Afghanistan is dragging on, and no one knows for sure how fast major economies around the world will rebound. That's a lot of unknowns to work with, especially when you're a global company like Du Pont and half your sales are overseas.

As a result, Holliday has kept a tight rein on investments. While he has continued the company's IT overhaul, he hasn't expanded capacity, and he has just put off the rollout of a new electronics material. He says that if the economy were more robust, Du Pont would be spending 10% to 15% more than its current $2 billion capital expenditure budget. And on the IT front, Du Pont is nearing the end of its companywide project. Says Holliday: "By the time we're out of this recession, our IT spending is going to be much lower''--an ominous sign for those waiting for tech spending to take off.

One company that has transformed itself into a global giant with the help of technology is UPS. Today it's the clear leader in its industry, but it still faces fierce competition from FedEx at home and DHL in Europe and Asia. Industry analysts expect the global market to be carved up in the next five years, and UPS CEO Mike Eskew is hoping to grab as big a share as possible. So what's he doing with capital expenditures?

Like Du Pont, UPS hasn't cut back on IT spending. In fact, the company has kept it constant at an annual $1 billion for the past 15 years. But UPS did reduce spending on transport equipment like trucks and airplanes as the volume of packages slowed during the recession. Now both Eskew and CFO Scott Davis are waiting for a pickup in business before they start to expand their transport fleet again. "After so many years of good times, when the economy did turn bad, everybody was saying the recovery would be just around the corner," says Eskew. "Now I think there's a little skepticism. We're all starting to say, Well, it's going to come, but we'll just wait until it does."

Both Eskew and Davis expect the recovery, whenever it comes, to be slow. "A lot of people who are managing companies have never been through a downturn, and that's going to make them a lot more cautious," says Davis. Longer term, Eskew remains optimistic. "We're a country of big thinkers, and we'll come up with that next form of innovation," he says, "And when we do, it's going to drive an awful lot of growth."

While UPS has clearly benefited from new technologies, other companies have found the payoff slow or nonexistent. And that, too, may hamper future tech spending. A Gartner Group study found that 55% of all installations of customer-relationship software--probably the hottest turn-of-the-millennium corporate IT fad--did not produce any results. Another study by the Standish Group was more alarming: Of 280,000 IT projects tracked, only 78,000 were classified as successful in 2000. "Most of our client base is proceeding cautiously on IT," says Christopher Zook, director of global consulting firm Bain & Co. "Many are wary that IT investments will turbocharge their growth."

Happily for retail giant Best Buy, it is not one of the companies disappointed by IT investment. In fact, CEO Brad Anderson raves about it. Best Buy is spending almost $1 billion this year, mostly on technology. And the results have been clear. The company averaged annual earnings-per-share growth of 46.6% in the five years from 1996 to 2001. Today its market faces excess capacity, and the challenge for Anderson is to differentiate his stores. On top of that, the retail business for electronics and computers is all about selling at low prices. For Anderson, that means he must boost volume and productivity to deliver fast-growing profits.

In response, Best Buy has added new stores at a rapid rate and upgraded its IT system. "We're going full out," says Anderson. "We couldn't be investing any more even if the economy were booming." That's because Anderson is very optimistic about the group's chances for the future. "We get to see some of the technology first that's coming down the line, and we think in the long term it will be great for our business," he explains. He's especially excited about new consumer products like digital TV and satellite radio.

The problem is that not enough companies are experiencing the kind of torrid growth Best Buy is. "If you look at the data, the number of companies that can grow more than 5% each year is decreasing," says Bain's Zook. "And the number of mature markets worldwide is increasing." At the same time, many industries now face excess capacity and are being forced to consolidate. Look at telecoms, the electronics industry, airlines, newspapers, car rentals, insurance, and investment banks, to name just a few.

Those pressures are compounded when firms can't raise prices. And that's exactly the situation in which many companies operating in global markets find themselves. As a result, companies must either raise their sales volume or cut costs and increase productivity to generate profits. In mature markets, that leaves cost cutting and productivity gains as the only path to stronger earnings growth. "For those in mature businesses, there's a lot of frustration right now to get the kind of productivity to keep up with deflationary pressures," says Best Buy's Anderson.

At the same time, the pressure on CEOs to deliver strong profit growth has increased. Despite the market correction, stock prices remain high by historical standards, and corporate leaders have to justify their lofty P/E ratios somehow.

So CEOs now find themselves in a bind--how to meet profit expectations when it's getting harder to find new sources of growth. That's creating a lot of anxiety in the corporate world and accounts for much of the recent gloom. According to a recent survey of executives by Bain, the No. 1 priority of 40% of those surveyed was to find the next wave of profitable growth. Another 40% ranked that same concern among their top three priorities. "We're in a dangerous period for business," says Zook. "There's an underlying crisis of growth that's been masked by the cyclical downturn."

Still, it's not uniformly bleak. In fact, there are plenty of encouraging signs elsewhere in the economy: Wage gains are slowing, productivity is booming, consumer confidence and demand remain robust, banks are beginning to reopen the lending spigot, inflation is low, and the Federal Reserve has kept interest rates steady. All those factors suggest that the worst of the profits recession is over and that earnings should start to recover before very long. Indeed, Bruce Steinberg, chief U.S. economist at Merrill Lynch, forecasts operating earnings per share to grow this year by 21%, and by 19% the following year.

The trouble is, even if earnings recover this year, it won't necessarily translate into higher capital spending right away. While CEOs may finally be getting profits out of their existing investments, they're not going to dive headlong into new projects. Given the downbeat mood among CEOs, profits will probably have to be strong for some time before corporate leaders embark on their next bold investment plan. And that will make for a slower overall recovery, which would make sourpusses out of not just CEOs, but all of us.

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