The amount of money American business plan to invest in new plant and equipment this year has increased slightly, but still falls short of the level the Carter administration has said is necessary for a strong economic recovery.
A report published yesterday by the Commerce Department showed that business expects to invest $135.3 billion in 1977, up 12.3 per cent from 1976, and 0.6 per cent more than estimated in March. Spending in 1976 was $120.5 billion, 6.8 per cent more than in 1975.
If adjusted to the same kind of inflation that prevailed for capital goods last year (4.6 per cent), this would work to a real increase in 1977 of 7.7 per cent.
The minimal increase over the last Commerce Department projection chilled the optimism generated by a McGraw Hill survey of business investment, which last month forecast an increase of 18 per cent in money terms and 11 per cent in real terms in 1977.
Government sources said yesterday that they had considered the McGraw Hill survey far too high, and were not really surprised by the much more modest Commerce forecast. In fact, some government economists were cheered that the forecast showed a slight upturn, rather than a slight downtown.
Economic Council Chairman Charles L. Schultze has said publicly that business spending must increase at a real rate of 9 to 10 per cent for the next three or four years to achieve the administration's high-employment goals.
Laggin business investment has prevented a fuller economic recovery from the recession so far, most economists believe. Investment in new plant and equipment is considered one of the main generators of economic growth because the money spent creates demand for both materials and manpower. And the new capacity helps industry boost productivity and remain competitive.
Commerce Secretary Juanita Kreps who said a week ago that the capital expansion numbers "were as eagerly awaited as any statistic in a long time," said in a telephone interview yesterday that the slight increase in the projection was "encouraging."
Schultze conceded that the administration would have liked a bigger increase but, according to the Associated. It shows strength in the first half."
The increase between the two surveys is accounted for mostly by spending plans for the first half, as Schulzte indicated, and mostly in manufacturing industries. But the rate of increase falls off sharply after mid-year.
Actual outlays in the first quarter were up 4 per cent from the fourth quarter of 1976. Present plans are for a 3.3 per cent increase in the second quarter 1.8 per cent in the third quarter, and 1.6 per cent in the fourth quarter.
Breaking down the 12.3 per cent overall increase, the survey showed plans for increases of 14.2 per cent in manufacturing industries and 10.9 per cent in non-manufacturing. Transportation firms other than rail and air projected a 34 per cent decline.