By Jeannine Aversa
The Associated Press

WASHINGTON - Business is finally perking up for William "Lex" Taylor, whose company makes industrial equipment. Orders are up roughly 25 percent over the last two quarters, and some laid-off workers have been called back.

But he's not celebrating yet. "Cost cutting is still the name of the game," Taylor said.

Encouraging signs of a thaw in the big freeze on business spending - a major factor in plunging the U.S. economy into a recession in 2001 and restraining its subsequent recovery - are heartening many in the nation's business community. But, like Taylor, their mind-set is one of guarded optimism.

"They've been beaten up pretty bad. Now they are kind of seeing some light shining in their eyes. They were knocked out and now are beginning to come to, but they are cautious," said Fletcher Steele, president of Pine Hall Brick Co. in Winston-Salem, N. C.

It's too early to tell whether the recent spurt in business spending will gain momentum or fizzle out, something Federal Reserve Chairman Alan Greenspan and President Bush are watching closely.

During the economy's two-year struggle to get back to full throttle following the recession, U.S. businesses have seen "upticks in orders that turned out to be false signals - not a trend," Steele noted. "They got their fingers crossed that this one may be the one."

That hope is bolstered by recent government statistics. After slashing spending in new plants and other buildings for six straight quarters, businesses boosted that spending in the April-to-June quarter of this year at an annual rate of 4.2 percent. Spending on equipment and software grew at a rate of 8.3 percent in the second quarter, a turnaround from the 4.3 percent rate of decline in the previous quarter.

The increases helped propel economic growth in the second quarter - as measured by gross domestic product - at a rate of 3.3 percent, a big improvement over the lackluster 1.4 percent growth rates turned in both the last quarter of 2002 and the first three months of this year, when uncertainties about a war with Iraq weighed on businesses.

"Now you have the sense that there is a momentum coming," said Bob Sherman, president of Blackstone Valley Security, a Providence, R.I., supplier of uniformed security guards. "People are getting more confident and willing to make decisions again."

Economists believe the economy picked up even more speed in the third quarter to at least an estimated 5 percent growth rate - those figures will be out Oct. 30 - and predict economic growth in the last quarter of this year will clock in at a rate of around 4 percent.

Fed Governor Susan Bies said anecdotal evidence from the corporate sector was "more upbeat as corporate managers see sales picking up and the financing environment improving." By region, though, it's still a mixed bag, according to a Fed survey of business conditions in its 12 regions in September and October.