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Sign of Optimism : Business Expected to Raise Capital Spending 10.9%

March 15, 1985|Associated Press

NEW YORK — American businesses, growing more optimistic about the nation's economy, are planning to spend $386.5 billion or 10.9% more on new plants and equipment this year than they did last year, McGraw-Hill Publications Co. said Thursday.

McGraw-Hill's latest survey showed that more than 500 companies have boosted their capital spending plans by more than a full percentage point from last fall, when they expressed plans to increase capital spending 9.8% in 1985.

Another sign of optimism was that companies have increased their projected capital spending for 1985 despite lower inflationary expectations, the business information publishing company said.

The survey said companies now expect plant and equipment prices to rise 4.9% in 1985. The fall survey showed expectations that prices would rise 5.3% in 1985.

This means companies are projecting a real increase in capital spending of 5.8% in 1985, contrasted with last fall's projection of a real 4.3% increase.

Joseph Spiers, senior economist for the McGraw-Hill economics department, which conducted the survey, said 1985 "looks like a fairly decent year for growth in capital spending, although it won't grow anywhere near the booming growth rates of last year."

'Make Up for Slowdowns'

He said he expects capital spending to be "one of the leading sectors of gross national product, helping to make up for slowdowns in other areas, especially housing growth."

He said more companies will probably look for outside financing for their capital spending this year, since profits are not growing as quickly as they were at the peak of the recovery. "This could help to push up interest rates," he said.

The companies surveyed were less optimistic about 1986, McGraw-Hill said, although the outlook for next year has also improved from the survey last fall.

The latest survey showed that no increase in capital spending is planned for 1986, while last fall's survey showed plans to decrease capital spending 1.9% during that year.

"That's a disturbingly weak level of capital spending growth, but I don't think it signals another recession," Spiers said in a telephone interview.

23% of Total in U.S.

Companies responding to the survey account for 23% of the total capital spending in the United States, McGraw-Hill said.

The automobile industry plans to increase its capital spending 46.4% from a year earlier, for the largest increase in the survey, McGraw-Hill said. Other industries planning large increases were non-electrical machinery, 37.4%; instruments, 34.7%; aerospace, 27.5%; iron and steel, 17.6%, and stone, glass and clay, 15.8%.

Spiers said the substantial increases in capital spending will be devoted to factory automation and other means of increasing productivity.

"It shows that the durable-goods companies are alive and kicking and not about to give up the rest of their markets to the Japanese, the Europeans or any other foreign competitors," he said.

In a separate report Wednesday, the Conference Board, a business sponsored research organization, said it expects the nation's 1,000 largest companies to boost their capital spending by 34% in 1985.

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