Capital Spending Plans at Fastest Clip in 4 Years
Businesses enjoying a boom in export sales plan to modernize and expand at the fastest rate in four years, the government said Thursday.
The Commerce Department said a survey completed in May showed that U.S. companies plan to spend $435.2 billion on capital projects in 1988, an 11.9% increase over last year’s spending of $388.8 billion.
If realized, it would be the biggest gain in plant and equipment spending since 1984, when spending shot up 16.6% as businesses recovered from the 1981-82 recession. The rate of increase would be seven times greater than the anemic 1.7% gain posted in 1987.
In 1986, investment spending fell by 2.6% as firms put plans on hold while Congress rewrote the tax code. Spending had increased a strong 9.6% in 1985.
The new estimate, which is adjusted to remove the effects of inflation, represents an upward revision from a previous survey completed in March that had put the gain for 1988 at 8%.
Analysts said the report was good news for the economy. Because the cheaper dollar has created more demand abroad for American goods, U.S. industries need to increase their manufacturing capacity to simultaneously boost export production and avoid inflationary pressures.
“Manufacturing, especially in 1988, looks like it has very aggressive plans. . . . That’s got to be good news,” said David Wyss, chief financial economist of Data Resources Inc. of Lexington, Mass.
Manufacturers expected to boost spending by 12.9%. Makers of durable goods expect to boost capital spending by 11.6%, while producers of non-durable products expect a 14.2% increase.
Non-manufacturing firms projected an 11.3% increase; transportation firms a 10.1% rise; mining companies a 5.6% increase, and utilities a 3.2% gain.
However, Wyss warned that rising interest rates or renewed trouble in the stock market could cause businesses to quickly scale back expansion plans.
Stephen S. Roach, senior economist at Morgan Stanley & Co. in New York, sounded another cautionary note. Although increases in capital spending are “real and very solid,” much of the investment surge is going for high-technology items like computers, telecommunications equipment, photocopiers and scientific instruments, he said.
“We continue to feel that the bulk of this increase is not showing up in any dramatic new construction of industrial facilities, and that’s where our capacity shortfall is most notable,” he said.
The new survey, taken after businesses had the actual spending totals for the first quarter, showed a 1.0% increase in investment spending during the first quarter of this year, after a 3.8% increase in the last three months of 1988.
