Business Plans to Spend Little on Modernization in ’91

American businesses, worried about a recession, plan a barely perceptible 0.4% increase in spending to modernize in 1991, the most pessimistic outlook for business investment in five years.

The findings released in a Commerce Department report Thursday showed that the pessimism about the future that had been widely reflected in surveys of consumer sentiment has spread to American businesses.

“The plans for 1991 reflect increasingly tough times in the economy,” said Allen Sinai, chief economist of Boston Co.

The 0.4% increase, after adjusting for inflation, would follow a projected advance of 4.1% for this year.

It would be the weakest showing since business investment fell 3.1% in 1986, when American manufacturers battered by a flood of foreign goods cut back plans to expand and modernize.

Some economists said even the tiny 0.4% gain was unlikely if the recession turns out to be worse than expected. The estimate, they said, is based on a survey taken in October and early November.

Since then, evidence has mounted that the downturn could be worse than originally believed. A report last week showed that industrial output fell in November at the steepest pace since the end of the last recession in 1981-82.

Sinai predicted that when actual 1991 spending is totaled, it will show business investment falling 3% to 5%. That would act as a further drag on the economy, because business investment in each of the past two years has contributed about one-fifth of the economy’s total growth.

Evelina Tainer, an economist with First National Bank of Chicago, said the weak spending plans reflected “producers’ pessimism about the economy.”

The survey put total 1991 business investment spending at $524.2 billion. Earlier surveys for 1990 had put the spending advance as high as 5.5%.

The latest estimate of a 4.1% increase was down a full percentage point from a 5.1% projection based on a survey released three months ago.

In another report reflecting the slowing economy, the Commerce Department said consumer spending remained sluggish in November, inching up just 0.1% after holding steady the previous month.

Consumer spending represents about two-thirds of the nation’s economic activity.

At the same time, the department said, personal income rose a scant 0.3%, just keeping pace with inflation. However, the rise was attributed entirely to increases in farm subsidies. Excluding those, income would not have changed.

Analysts blamed weak spending on the weak growth in personal income.

“The combination of job losses, reductions in hours worked and a recession in manufacturing and other sectors is just not generating income in wages and salaries,” Sinai said. “It sets a very bleak picture in place for consumer spending.”

Many economists are looking for total economic activity, as measured by the gross national product, to fall 3% to 4% at an annual rate in the current October-December quarter.