U.S. Survey Projects 6.2% Rise in Capital Spending
Businesses plan to increase capital spending 6.2% this year--a less ambitious pace than had been projected earlier, the Commerce Department reported Tuesday.
The department based that finding on a survey conducted in April and May. A similar survey for January through March indicated that 1985 spending for expansion and modernization would increase 7.3% over 1984. In both instances, figures were adjusted to discount the expected effects of inflation. Analysts said the slowdown was not surprising considering the deterioration in the economy this year.
“Businesses have been very pessimistic in the last few months,” said Michael K. Evans, president of Evans Economics.
No Big Surprise
He added: “Businesses have started to pull in their horns, especially in the manufacturing sector because of the perceived threat of foreign competition. So I would say the decline is right in line with what economists in general were expecting.”
The new figures are less than half of the 14.9% capital spending surge recorded in 1984--the biggest gain in 18 years--that came as the economy grew a strong 6.8%. In the first quarter of this year, the economy grew at an annual rate of only 0.7%.
The Commerce Department survey indicated that much of the downturn may have already occurred, with accelerated spending plans expected for the rest of the year.
The manufacturing sector, struggling to compete with a wave of imports, reported a 1.5% upward revision in its spending plans, the survey said.
Non-manufacturing industries, meanwhile, revised their spending plans downward 0.3%.
Offset by Inflation
According to the survey, businesses plan to spend $386.1 billion on new plants and equipment. That is $1.7 billion higher than reported in the previous survey, but the rise is more than offset by inflation.
The Commerce Department, which uses a capital goods price deflator to calculate inflation, said that measure rose 0.9% in 1984 and is projected to increase 2.9% in 1985.
Real spending, after discounting for inflation, was flat in the first quarter of 1985 after a 1.1% increase in the fourth quarter of 1984.
The department said estimates indicate a 3% real increase in the second quarter of 1985, 1.1% in the third quarter and 0.2% in the fourth.
The sharpest increase, 12.7%, is anticipated by durable goods industries, including 31.1% in motor vehicles.