Firms Plan Biggest Spending Hike in 5 Years
Despite signs that the economic pace may be leveling off, businesses plan their biggest increase in spending in five years this year on bigger plants and new equipment, the Commerce Department said Thursday.
Based on a government survey, businesses are projected to increase investments in new building and equipment by 8.8% to $638.4 billion this year--revised upward from a projection three months ago, the department said. U.S. business spent $587 billion last year.
Meanwhile, the Labor Department said the number of initial claims for state unemployment benefits declined a modest 3,000 last week. First-time claims totaled a seasonally adjusted 330,000 in the week ended Sept. 3, down from a revised 333,000 in the previous week.
If the 1994 business spending plans are realized, it would be the biggest jump in capital investment since an 11.4% increase in 1989. In June, the government survey projected an 8.3% rise in investment spending this year. Business investment rose 7.3% last year.
“I would say this is a sign of confidence by businesses that we have not peaked out,” said economist Priscilla Trumbull of the Wefa Group, a forecasting firm in Bala Cynwyd, Pa. “This is probably our peak year in growth. But we are not talking about a major back-off in growth for 1995.”
“The business sector maintains its confidence in the recovery,” Commerce Secretary Ronald H. Brown said in a statement. “While growth may slow somewhat . . . the fundamentals of this expansion . . . remain intact.”
Financial markets took the latest reports in stride. The Dow Jones industrial average was up more than 22 points at the close of trading Thursday.
Thursday’s capital investment projection suggests businesses have not been greatly affected by the Federal Reserve Board’s five increases in short-term interest rates since February, economists said.
They said the higher rates might even bolster the confidence of business planners who expect the Fed’s campaign against inflation to hold down long-term interest rates.
