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Capital Outlay Plans Slashed

May 19, 1986|Associated Press

NEW YORK — Largely because of collapsing oil prices, U.S. businesses have reversed earlier plans for expansion and cut their capital investment spending by 0.5% to $384.5 billion, according to a survey released Sunday.

Earlier this year, the companies were planning an overall 3.4% rise in new plant and equipment purchases, McGraw-Hill Economics said.

In the survey, conducted in March and April, major petroleum companies and refiners reported the most drastic revisions in capital spending plans.

While the companies told a winter McGraw-Hill poll that they would raise investment slightly, the same companies reported in the latest poll that they had reduced their 1986 capital budgets by 23%.

The main reason was the sharp drop in oil prices, which have fallen from nearly $32 a barrel in November to current levels of about half that figure, the survey said.

But even aside from oil patch investment, capital spending is only likely to rise 2%--not counting inflation, which survey respondents expect to run 3.7% for plant and equipment, McGraw-Hill Economics said.

"If both the spending and price projections come to pass, 'real' capital spending this year would decline about 4%," it added. 'Real' spending is the amount after the effects of inflation are removed.

The latest survey drew responses from nearly 500 companies, which accounted for a quarter of all capital spending in the nation, McGraw-Hill said. It added that the data was adjusted to represent all U.S. capital spending, not just that of the survey respondents.

On the positive side, aerospace companies, which have been receiving strong orders for civilian and military aircraft, reported plans to raise their capital spending by 29.3%.

But most industries reported sluggish spending plans, according to the survey results. Among those planning big capitalization cuts this year were mining, down 11.9%; railroads, down 11.6%, and electrical machinery-- which includes the struggling semiconductor industry--down 13.7%.

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