U.S. businesses plan to boost their investment on new facilities and equipment by 6.3 percent this year after a revised 10.1 percent spending jump in 1988, the Commerce Department reports.
The more modest capital spending increase, while still reflecting optimistic outlook among executives, also shows that they expect the economy to grow at a slower pace than in the past, economists said.Based on surveys of business executives taken between January and March, the department projected an increase in capital spending in 1989 to an inflation-adjusted $450.39 billion from $423.77 billion last year.
The 10.1 percent 1988 spending increase was revised down from a previously estimated 10.8 percent gain, but was still the largest rise since 16.6 percent in 1984.
The latest projected increase in 1989 capital spending was higher than the 5.9 percent gain estimated by the department in December based on surveys taken in October and November.
Investments in new facilities and equipment are essential not only to improve the competitiveness of American companies in world markets, but also to increase efficiency, expand capacity and thereby ease inflationary pressure.
As factories increased their operating rates over the past few years to meet the growing demands of foreign customers, American consumers and other companies, they have sometimes raised prices to cover their additional costs. These price hikes have been cited as a source of inflation.
Although the amount of total operating capacity used by American companies eased slightly to 84.3 percent in February, it was still near a nine-year high.
Economists have said it is highly unlikely that capital spending will increase as much this year as it did last year, in part because the 1988 increase was too large to sustain.
Economists generally expect economic growth to wind down this year, with some even expecting a recession, following more than a year of steadily rising interest rates engineered by the Federal Reserve Board to restrain inflation.