U.S. Firms Seen Hiking Capital Spending : Will Climb 7.3% to $419 Billion in 1988, Commerce Survey Says
Businesses, enjoying increased demand in the manufacturing sector, are planning to boost spending on expansion and modernization by 7.3% in 1988, more than three times this year’s expected increase, the government said Wednesday.
The Commerce Department said a survey completed in November found that U.S. companies have plans to spend $419.9 billion in 1988 on capital investment, an increase of $28.43 billion from this year after adjusting for inflation.
If realized, it would be the biggest increase since a 9.6% rise in 1985 and would contrast with an expected advance of 2.3% this year.
Analysts said the survey results were encouraging because it showed that companies were not scaling back their investment plans in the wake of the stock market collapse in October.
However, economists stressed that companies could quickly shelve these plans if it looks like the economy is weakening next year and extra production capacity won’t be needed.
“These numbers are an encouraging sign that corporations aren’t panicking, but they still reflect pre-crash plans,” said David Wyss, an economist with Data Resources Inc. in Lexington, Mass.
“Most of the companies that we have talked to say they haven’t changed their investment plans yet but that they are watching the (sales) market very closely.”
The new survey showed that businesses had boosted their spending plans for this year as well. The previous survey, completed in August, had put spending for this year at 1.4%, a figure that has now been increased to 2.3%.
Michael Evans, head of a Washington forecasting firm, said he doubted that the 1988 investment forecasts would come anywhere near being realized. He said that on the eve of recessions in 1974, 1980 and 1982, businesses had also been forecasting gains in capital spending that were scrapped when it became evident the economy was in a downturn.
“Until businesses see the actual drop in their orders, they don’t cut back on capital spending plans. It happens every time,” he said.
Evans is forecasting that the economy will suffer a brief recession next year caused by a slowdown in consumer spending.
The increase in business investment this year follows a 2.6% decline in spending in 1986 as American manufacturers scaled back expansion plans in the face of stiff foreign competition. U.S. producers have enjoyed rising export sales this year as the weaker dollar has made American products more competitive on overseas markets.
For 1988, manufacturing firms predicted that they would boost spending by 8.6%, nearly triple the 3.1% advance expected this year. The anticipated 1988 increase includes a 3.4% rise projected by firms making durable goods--items expected to last three or more years--and a 13.4% advance at those making non-durable goods.
Non-manufacturing industries projected an increase in investment of 6.5%, with mining, transportation and other commercial enterprises all forecasting gains.
Utility companies were the only sector forecasting a drop in investment next year, a projected decline of 0.6%, which would follow a 5.5% drop expected this year.