Expansions Signal Business Confidence : U.S. Survey Shows Planned 7.7% Hike in 1989 Spending

The government reported today that American businesses plan to increase spending on plants and equipment by 7.7% in 1989, a sign that many company managers do not believe that a recession is imminent.

Businesses responding to a Commerce Department survey completed in August said they expected to spend $463.95 billion for expansion and modernization this year, up from a record $430.74 billion spent on business investment in 1988. The 1988 figure was revised from $423.69 billion reported earlier. The numbers are adjusted for inflation.

Some economists had feared that business leaders would be inclined to cut back on capital spending if they believed that a severe economic slowdown was on the horizon.

There was concern earlier this year that the economy, approaching its seventh year of growth, might be headed for a recession as the Federal Reserve tightened credit in an attempt to contain inflation.

Interest rates began creeping down last spring, however, and a number of statistics since then have shown an economy that is slowing, but not as fast as previously thought.

The new estimate for capital spending this year shows that businesses were increasing their plans for plant and equipment spending as the year wore on. An earlier survey released in June found businesses planning to increase spending by 6.5%. A March survey indicated a 6.3% increase.

In an even earlier survey of 1989 business investment plans, conducted last December, companies had estimated that their capital spending could rise 5.9% this year.

Economists generally interpret plant and equipment spending as a plus for the economy.