Businesses Scale Back ’90 Investment Plans

American businesses plan to boost spending on plants and equipment 4.9% in 1990, little more than half of their projected 8.5% increase in investment this year, the government said today in a report reflecting the sluggish economy.

The Commerce Department said a survey completed in November found businesses planning to spend $490.1 billion for expansion and modernization next year, compared with projected spending of $467.2 billion this year and $430.7 billion in 1988.

If the 1989 spending is realized, it will mean that the 8.9% gain in 1988 and the 1989 advance will set back-to-back spending records. The previous high was $391.58 billion in 1985.

Spending plans for 1990, however, are the lowest since a 4.2% gain in investment in 1987.

Economic growth has slowed dramatically in the final quarter of this year and analysts expect the sluggishness to continue at least through the January-March period of 1990.

“Estimates indicate a slight decrease in the fourth quarter of 1989, a 3.1% increase in the first quarter of 1990 and an increase of 2.5% in the second,” the report said.

Much of the growth restraint has been caused by tight credit policies of the Federal Reserve as it sought to constrain inflation. But as inflation moderated, the central bank began last June to ease short-term interest rates to stimulate economic growth.

The Fed appeared to signal this week that it might permit short-term rates to drop further, the first such move since late November.

Any growth in business spending will help the economy next year, providing part of the momentum needed to keep the nation out of a recession.

In addition, spending for business investment to replace aging plants and equipment and expand production facilities helps to boost U.S. productivity, an increasingly important factor in view of the stiff competition the nation faces from overseas.

In the latest survey, manufacturing companies--hit hardest by the slowing economy--said they planned a 1.4% increase in capital outlays to $182.8 billion, compared with a 7.3% increase to $180.2 billion in 1989.

This includes a 1.5% decrease in plants that produce durable goods--big-ticket items expected to last more than three years--and a 4% gain in companies producing nondurable goods.

Durable-goods manufacturers increased their investments 4.2% in 1989 and nondurable investments were up 10%.

Companies engaged in mining, transportation and other nonmanufacturing ventures indicated they will increase spending by 7.1% to $307.3 billion, compared with a gain of 9.2% to $286.9 billion this year.