U.S. Companies Expect 8% Growth in Capital Spending

Businesses plan to increase capital spending by 8% this year, the government reported Friday, raising hopes that manufacturers will expand factory capacity enough to ease long-term inflation pressures.

The Commerce Department said U.S. companies expect to spend $419.9 billion, after adjustments for inflation, on expansion and modernization this year. If realized, that would be the best gain since a 9.6% rise in 1985.

Businesses spent $388.7 billion last year, a 1.7% increase over 1986.

The new estimate for 1988, based on a survey completed in March, represented an increase over a survey finished in November, when businesses said they planned to spend 7.3% more.

“That’s good for inflation in the longer term,” said Maury Harris, chief economist of Paine Webber in New York. “That added capacity helps meet demand. If they weren’t increasing their capital spending, I’d worry.”

A separate report by the Labor Department on Friday, showing wholesale prices advancing at a 7% annual rate, renewed inflation fears among investors.

Adding to the concern is the fact that the operating rate at factories, at 82.4% of capacity in February, is the highest in eight years. The Federal Reserve plans to release data for March on Monday.