Spending Plans by Business Surge; Strongest Since 1989 : Economy: Investment in new plants and machinery is expected to rise 7.1%, compared to a 3.4% increase last year.
In a vote of confidence for the economy, American businesses this year plan to boost spending for new equipment to the strongest pace since 1989, the Commerce Department said Thursday.
Spending on new plants and machinery is expected to rise 7.1% to $585.2 billion, after a 3.4% increase last year. The increase in investment is the biggest since an 11.4% gain in 1989.
In another sign of budding economic revival, the number of new applicants for jobless benefits fell to a four-year low of 316,000 last week, the Labor Department said. That was 10,000 fewer than in the preceding week.
“It’s an indication the labor market is strengthening modestly, and that should show up in the September employment report,” said economist Sung Won Sohn of Norwest Corp. in Minneapolis.
The August unemployment report, issued last week, was a shock because it showed a loss of 39,000 non-farm payroll jobs. But Sohn said he expects a substantial revision to that report because it did not agree with other signs of the slow economic expansion.
The business investment survey suggested more optimism among business leaders. It updated an earlier survey done in April and May in which they planned only a 6.4% spending rise in 1993.
Commerce Secretary Ron Brown hailed the revised investment plans as “more evidence of advancing economic growth and that lower interest rates are having some effect on the economy.”
Significantly, manufacturing companies said they plan to raise their spending for expanded production by 3.4%--a turnaround from 1992, when they reduced investment by 4.8%, and from 1991, when they cut investment by 5.1%.
Auto makers led the way, saying they plan to boost spending by 39.5% this year after slashing it in 1992 by 15%.
U.S. car makers have been enjoying stronger sales while popular Japanese makes such as Honda have been forced to raise prices to maintain profits because of the steep decline in the value of the dollar against the Japanese yen.
“Capital spending continues to be a source of economic strength,” Sohn said. “Firms have clearly decided to increase productivity by adding capital equipment like computers.”
But he cautioned that much of the capital equipment is imported, notably computers made in Japan, Taiwan, South Korea and Thailand, and said the United States will probably end up with a deficit of $18 billion to $20 billion this year.
Plant and equipment spending plans generally are considered a measure of corporate managers’ confidence--or pessimism--that demand for goods and services will grow enough to justify the investment.
Productivity
Non-farm business productivity, percent change from previous quarter at annual rate, seasonally adjusted: -1.3%, second quarter of 1993.
Source: Labor Department.
