American businesses plan to increase spending on plant and equipment by 13.3 percent this year, a decline from earlier estimates of a 14.8 percent increase but still a reflection of strong growth in capital outlays.
Businesses plan real capital spending this year of $144.66 billion, up from $127.71 billion last year. Before adjustment for inflation, businesses will spend $307.60 billion this year, compared with $269.22 billion in 1983, the Commerce Department reported.
Increased capital spending should make the United States "an increasingly tough competitor in world markets," Commerce Secretary Malcolm Baldrige said, adding that the figures indicate "that the nation's stock of capital goods is increasing rapidly."
Baldrige said the growth in capital spending was because of strong sales, administration investment incentives and confidence of businesses in the economy's growth.
"Real new investment should reach a record high during the current quarter and, if plans are realized, the year-to-year increase would be the largest since 1966," Baldrige said.
Real spending declined 3.6 percent in 1983.
As demand picked up early in the economic recovery, some economists feared that factory capacity was being increased too slowly to head off price increases from shortages and bottlenecks.
However, as the expansion grew, so did capital spending, particularly in cost-saving and less durable goods such as computers.
Increases in capital spending that expand capacity help to keep down inflation.
In addition, increased purchases of capital goods tend to lead to improved productivity, which also helps to keep inflation at bay.
"The volume increase in outlays is really very strong" despite the slight decline in spending plans for the year, said Alan Murray, an economist with Citicorp Information Services.
"What's more important" than a slight drop "is the strength of capital spending." Murray said he doubts that capital spending would flatten out in the fourth quarter.
"There seems to be so much momentum in the first three quarters," he said. "I don't see any reason for that momentum to dwindle away."
Current-dollar spending in the second quarter rose 3.3 percent to an annual rate of $302.7 billion. It followed a 3.2 percent increase in the first quarter. Spending in the second quarter was 0.4 percent lower than spending plans reported three months ago.
Businesses responding to the current survey, which was conducted in late July and August, said they planned to increase capital spending by 4.5 percent in the third quarter and by 0.7 percent in the fourth quarter.
Real spending increased by 2.6 percent in the second quarter following a 4.1 percent rise in the first quarter. The Commerce Department estimates that real spending will rise by 4.2 percent in the third quarter and by 0.2 percent in the fourth quarter.
The slight decline in real spending plans for the year was due largely to adjustments for inflation, Commerce Department Chief Economist Robert Ortner said.
During the previous survey of businesses, Commerce economists assumed zero inflation.
However, during the latest survey, the inflation measure was increased to 0.9 percent, thereby lowering the estimates of planned spending by about 1 percentage point, Ortner said.
In addition, spending plans of some nonmanufacturing industries such as mining and public utilities were lowered, Ortner said.
Many of the industries with plans to increase spending by double digits -- such as paper, rubber and automobiles -- are at high levels of capacity utilization and would have to expand to head off serious price hikes, Ortner said.
Manufacturing industries planned a 16.9 percent increase in real spending this year, compared with earlier estimates of 15.5 percent, Commerce said.
Most of that upward revision was in the durable-goods industries.
The largest planned increases in capital spending among durables were in motor vehicles, 48.9 percent, and electrical machinery, 26.4 percent.
Spending by fabricated metals companies rose 16.0 percent, followed by nonelectrical machinery, 13.6 percent, and nonferrous metals, 13.1 percent.
Textiles planned to increase spending by 21.9 percent, and rubber industries said their purchases would rise by 19.0 percent.