Businesses Plan 7.7% Hike in Capital Outlays for Year

Businesses plan to increase their plant and equipment spending by 7.7% this year, the government said Thursday in a report that analysts said shows no sign that industry fears an imminent recession.

“It’s yet another indication the economy looks quite healthy,” said Allen Sinai, chief economist of Boston Co.

The Commerce Department reported that responses to a survey completed last month show that businesses expect to spend $463.95 billion on expansion and modernization this year despite earlier concern about a significant economic slowdown.

If the plans are realized, capital spending this year would break last year’s record. The department revised its 1988 spending figure to $430.74 billion from $423.69 reported earlier.

All of the numbers are adjusted for inflation.

Economists had worried that the economy, approaching its seventh year of growth, might be stalled by Federal Reserve efforts to halt inflation by restraining credit.

‘Green Light for Economy’

However, interest rates began edging down last spring, and a number of statistics since then have pointed to an economy that is slowing, though not as fast as previously thought.

Sinai said the survey indicates “nothing but a green go-light for the economy for the rest of the year.”

Plant and equipment spending is seen as a plus for the economy because it indicates continued expansion and eases inflationary pressures by increasing productive capacity.

But economist Michael P. Niemira of Mitsubishi Bank in New York said corporate profits have been falling recently and the subsequent drain on cash flows is likely to have an effect on next year’s capital spending.

“Right now is the corporate planning time for next year when I think we will see a much reduced pace,” he said. “But for this year, the money has been allocated.”

The Commerce Department surveys have shown a steady increase in capital spending plans for this year. In its first survey, conducted last December, companies had estimated their spending would rise 5.9%.

Subsequent surveys showed spending plans up 6.3% in March and 6.5% in June.

Manufacturers’ Plans

Capital spending grew a revised 8.9% in 1988 after a revised 4.2% gain in 1987. Plant and equipment spending fell 3.9% in 1986.

Manufacturing companies estimated that they would increase their spending by 6.1% to $178.24 billion in the latest survey, compared to a revised 11.7% advance in 1988. The new figure includes a 2.8% gain for plants that produce durable goods, big-ticket items expected to last more than three years, and a 9.1% gain for companies producing non-durable goods.

Companies engaged in mining, transportation and other non-manufacturing ventures said they planned to increase capital spending by 8.7% to $285.72 billion.

Before adjusting for inflation, 1989 capital spending is expected to rise 10% to $473.65 billion, compared to 10.5% in 1988.