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

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 encouraging to many in the nation's business community. But their mindset, like Taylor's, 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 that Federal Reserve Chairman Alan Greenspan and President Bush are watching closely.

During the economy's two-year struggle to overcome recession and get back to full throttle, 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 increased such capital expenditure 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 of 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 in Providence, R.I., a company that provides uniformed security guards.

"People are getting more confident and willing to make decisions again."

Economists believe that 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 Thursday — and predict that 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.

In the Philadelphia region, more manufacturers planned to increase rather than reduce capital spending in the next six months. In the Kansas region, capital spending was up from a year ago as several firms added production space and increased their spending on machinery and information technology equipment.

But in the Chicago region, businesses wanted to see the economy revive more before ramping up capital spending. Similar caution was suggested in the Atlanta and Dallas regions. Manufacturing picked up in the New York, San Francisco, St. Louis and Minneapolis regions. But factory activity contracted in the Richmond region, was mixed in the Cleveland area and was weak in the Boston area.

What's behind the mixed picture? Economists say that after much belt-tightening, businesses may need to replace worn-out equipment — spurring spending. But they've also become more productive — doing more with fewer workers — which has helped profit margins but contributed to the sluggish job market.

"Increases in capital expenditures are not necessarily due to big growth in demand but due to the need to improve productivity, which can drive up earnings," said Taylor, president of Taylor Machine Works Inc. in Louisville, Miss., whose company makes forklifts, log stackers, side loaders and other equipment.

A weaker U.S. dollar has also made Taylor's equipment more competitively priced in overseas markets. His international sales are up about 10 percent from last year.

Taylor's company has rehired around 35 laid-off workers over the past year.

And at Blackstone Valley Security, Sherman has opened a new office and hired around 23 people in the past two months.