7.3% Capital Spending Hike Seen for 1985

U.S. businesses plan another healthy increase in spending for expansion and modernization this year, but the gain will be less than half the big jump recorded in 1984, the government reported Tuesday.

The Commerce Department said a survey conducted in the first three months of the year disclosed plans to increase capital spending by 7.3% in 1985, after adjusting for the effects of inflation.

This compares to a 14.9% surge in capital spending in 1984--the biggest increase in 18 years.

Before inflation is factored out, businesses actually spent $353.5 billion on new plants and equipment, a 16% gain over 1983. Their plans for 1985 call for spending a record $384.4 billion, an 8.7% gain before inflation is removed.

The latest government survey represented an advance in spending plans for the current year. An earlier survey conducted last fall found businesses planning a 6.8% after-inflation increase in capital spending in 1985.

Moderate Growth Rate

Analysts said the new estimate of 7.3% growth, if realized, will provide momentum to keep the economy growing at a moderate rate this year of about 3.5% to 4%. The overall economy, as measured by the gross national product, expanded 6.8% last year, the strongest rate in more than three decades.

Allen Sinai, chief economist for Shearson Lehman Bros., said the planned increase in capital spending was coming despite the significant slowdown in growth that began in the second half of 1984.

“This is a strong indication that we have a resilient business expansion, despite the weakness in the trade sector,” he said. “This spending is a very positive sign and it should be a significant prop for the economy.”

Jerry Jasinowski, chief economist for the National Assn. of Manufacturers, said the 7.3% increase in spending was in line with his expectations and was occurring despite weakness in certain areas.

“This is a modest but healthy capital spending outlook,” he said. “I don’t see anything that is going to throw the economy into a wild gyration in 1985, including the tremendous problems we are having with the trade deficit.”

Jasinowski said that among the reasons spending growth will be slower this year is uncertainty over how Congress might change tax laws governing business investment.

The 14.9% gain after inflation in capital spending last year was the largest since a 15.2% jump in 1966. The 1984 gain followed a 3.6% spending decline in 1983 and an even steeper 6.3% drop in 1982, during the depths of the recession.

By category, the new survey found that manufacturing industries plan an 11% increase in spending, before adjusting for inflation, compared to the 10.4% increase envisioned in the earlier survey.

The largest planned increase in manufacturing is in the auto industry, which is planning a 38.2% spending advance for modernization and expansion.