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U.S. Firms Plan to Invest 2.5% Less This Year

September 12, 1986|Associated Press

WASHINGTON — U.S. businesses, beset by a sluggish economy and tax-law uncertainty, have reduced their investment spending plans by 2.5% for this year, the biggest cut since the last recession, the Commerce Department reported Thursday.

The department said a survey completed in August found that businesses, after adjusting for inflation, plan to spend $376.47 billion this year on capital improvement projects, down from $386.32 billion actually spent in 1985.

It would be the first decline in business investment since 1983 and the biggest drop since a 7.9% plunge in 1982. Business spending on expansion and modernization rose 8.7% in 1985 after surging 15.8% in 1984.

Economists blamed the weak economy, cutbacks in oil and gas drilling and uncertainty over changes in the tax law for the steep decline in capital investment plans.

Many analysts said they believed the investment decline will be even worse than the survey plans indicate, throwing further doubt on the Reagan Administration's forecast for revived economic growth in the second half of the year.

The new estimate of spending plans represented a downward revision from the previous survey taken in April and May. At that time, businesses were planning a somewhat smaller 1.3% cut in investment this year.

"The downward revision from an already dismal figure certainly isn't encouraging for economic growth for the rest of the year," said David Wyss, economist with Data Resources of Lexington, Mass.

The Administration is forecasting that the economy, as measured by the gross national product, will expand at a robust annual rate of 4% in the last six months of this year, up substantially from the anemic 2.2% growth rate turned in from January through June.

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