Businesses Hope to Hike Investment : Economy: A Commerce Department survey finds plans for a third straight year of increases in capital spending.
WASHINGTON — American businesses plan a third consecutive increase in investment spending next year, taking advantage of low interest rates and strong profits to buy efficiency-enhancing equipment.
Based on a survey of more than 7,800 businesses in October and November, the Commerce Department on Tuesday estimated plans for spending on equipment and buildings next year at $617 billion, up 5.4% from this year.
Helped by low interest rates and high corporate profits, capital spending has been one of the strongest sectors since the U.S. economy began to emerge from the recession.
Pressured by their inability to make price increases stick, companies are buying computers and other high-tech equipment to make their operations more cost-efficient. However, at the same time, they’ve been slower to expand their payrolls than during other post-World-War II recoveries.
“We’re seeing an unusual amount of investment spending for such a weak economic recovery,” said economist Priscilla Trumbull of the WEFA Group, a Bala Cynwyd, Pa., forecasting firm.
“But it’s largely because businesses have to invest to make their workers more productive and lower costs. When prices don’t increase, the only way to increase profits is to cut costs,” she said.
This year’s estimated investment spending increase, 7%, would be the best since 1989. It marks a slight downward revision from the 7.1% estimate three months ago, but an increase from the 5.3% estimate a year ago.
Trumbull said investment spending could show a similar pattern in 1994, with businesses starting out relatively cautious and then increasing their plans as economic growth holds up through the year.
Spending rose 3.4% in 1992 after recording a rare 0.8% drop in 1991.
Commerce Secretary Ron Brown said investment plans for 1994 “suggest economic growth should be sustained into the next year, reflecting continued balance in the recovery between consumption and investment.”
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Economist Maury N. Harris of Paine Webber Inc. said increased investment by American companies should expand their productive capacity and help avoid inflation-causing production bottlenecks.
“The healthy increases in domestic capacity will help contain inflation. That’s the good news out of this,” he said.
Manufacturers plan a 3.8% increase in investment spending next year, compared to a 3.1% rise in 1993. Non-manufacturing companies plan a 6.2% increase, following an 8.8% increase this year.
Among the industries with the largest increases planned next year were blast furnaces and steel works, 25.9%; stone, clay and glass manufacturers, 15.5%; electric utilities, 10%, and food and beverage companies, 9.9%.
Those projecting declines included airlines, 35%; aircraft manufacturers, 21.1%, and non-iron and steel metal goods manufacturers, 10.8%.
Trumbull said the strength in steel reflects the development of new “mini-mills.”
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