Survey Sees Capital Spending Rising 6.3% in ’89

government reported Wednesday that American businesses plan to boost their plant and equipment spending this year by a solid 6.3%, which analysts said could help forestall a recession.

The Commerce Department said a survey completed in March found companies planning to spend an inflation-adjusted $450.39 billion this year for expansion and modernization, which would surpass the record $423.77 billion spent in 1988.

The pace of growth in 1989 would be slower than the 10.1% increase recorded last year, but analysts said the anticipated gain in capital spending still is healthy and indicates that businesses remain optimistic about the economy’s performance.

Continued strength in capital spending and the resulting increase in productivity could help extend the life of the economic expansion and ease inflationary pressures that have mounted as factories in some industries operate at rates near full capacity, analysts said.

“We think the economy will slow down, but we expect that because of continued strong capital spending and continued strong exports we should be able to avert an outright recession,” said David Wyss of Data Resources Inc. in Lexington, Mass.

The new estimate for capital spending in 1989 represents an increase from an earlier survey released in December, when businesses said they planned to boost spending by 5.9% this year.

The upward revision, based on a survey conducted from January through March, came even as most analysts are predicting the economy will cool this year. Analysts said businesses are likely to scale back their spending plans as evidence of a slowdown builds.

“The year got off to a good start, but what happens from here is going to depend on what happens to their markets,” said Robert G. Dederick, chief economist for Northern Trust Co. in Chicago. “The question is are they in fact going to carry out their intentions or are they going to be dragged down by developments elsewhere.”

The Federal Reserve Board has been pushing up interest rates for a year in an effort to cool the economy and restrain inflation. The Bush Administration and some analysts, however, have expressed concern that the anti-inflation campaign could prove too potent and unintentionally push the country into a recession.

Should the survey’s spending estimates be realized, “that would be consistent with what the Fed has been desiring, a less vigorous economy but one which is being led by capital spending,” Dederick said.