Analysts Disappointed by Results of Commerce Dept. Survey : U.S. Firms Scale Back Spending Plans

American businesses have scaled back further on their projected spending for expansion and modernization this year, the government said Wednesday.

The Commerce Department said that its latest survey, taken in July and August, found that businesses now project that capital investment, after adjusting for inflation, will rise by 5.8% this year.

In 1984, business spending on plant and equipment soared 15.3%, the biggest jump in 20 years, as industry pushed to expand and modernize in the midst of a strong recovery from the 1981-82 recession.

Most analysts had been expecting a much better 1985 gain than the 5.8% now projected. However, the U.S. economy has continued to disappoint this year as a tidal wave of imports has robbed domestic producers of sales. The economy, as measured by the gross national product, grew at a tiny annual rate of 1.1% in the first six months of 1985.

The Reagan Administration is predicting that growth will rebound sharply to a 5% annual rate in the final six months of the year, basing this optimism in part on hoped-for gains in business investment.

Commerce Secretary Malcolm Baldrige said the projected increase in capital spending was “still a strong gain,” and he noted that, if the plans are realized, then 1984 and 1985 will have posted the biggest two-year increase in manufacturing investment since 1966.

“Both the incentives to buy capital goods and the earnings to purchase them should support continued growth in investment at least through next year,” he said in a statement.

But private analysts said the latest survey of business plans showed that investment gains will not fuel the rebound expected by the Administration.

“Capital spending is growing and helping to avoid a recession, but it is not growing fast enough to generate a new surge in economic growth,” said Lawrence Chimerine, chairman of Chase Econometrics, a private forecasting firm.

Chimerine predicted that growth for the second half of the year would register about 2.5% to 3%.

David Wyss, an economist with Data Resources, said the downward revision in spending plans reflected the battering that domestic manufacturers have taken at the hands of foreign competition.

“Profits in the goods-producing area have been terrible, while employment has been essentially flat for a year now,” he said. “The manufacturing sector is not healthy, and the people doing the investing are not doing it in this country.”

But David Ernst, an economist with Evans Economics, another forecasting firm, said it was a plus that business investment plans did not drop farther given the weak economic activity at the time the survey was taken.

“Now that the economic picture is beginning to look brighter, a lot of spending plans that businesses had put on the shelf will be developed,” he said.

The new report said spending plans in the manufacturing sector dropped from a projected 10% increase in the previous survey to 7.9% in the current survey.

Spending plans of non-manufacturing businesses gained some strength, rising to 4.4% from a 3.8% projected increase reported in the previous survey.

The 1984 gain of 15.3%, the largest since a 16.2% rise in 1964, followed a decline in business spending of 0.8% in 1983.

Before removing the effects of inflation, capital spending rose 16.3% in 1984 and is projected to rise 8.3% this year. The survey of actual dollars spent put investment plans at $384 billion this year, compared to spending of $354.4 billion in 1984.