America's businesses plan to spend less on expansion and modernization this year than earlier anticipated, although actual spending probably will improve from a flat first quarter.
The Commerce Department reported that businesses planned to spend 6.2 percent more on capital goods this year than in 1984, after adjustment for inflation, a downward revision from the 7.3 percent increase businesses anticipated earlier this year.
Last year, businesses actually spent 14.9 percent more than the previous year, the sharpest gain in 18 years. However, Commerce also said that because capital spending was virtually flat in the first quarter this year, following a 1.1 percent real increase in the fourth quarter of 1984, most of the surge in business investment is yet to come.
Spending adjusted for inflation is expected to increase 3 percent in the second quarter, 1.1 percent in the third quarter and 0.2 percent in the fourth quarter, the Commerce Department said.
"When you look at the rest of 1985, it still looks pretty good," said Edwin Warren, economist for Chase Econometrics. Businesses "have a pretty strong increase slated."
Part of the reason for the weak 0.7 percent growth in the economy during the first quarter was the poor performance of business investment, economists said. Manufacturing industries have been hit hard by foreign competition, resulting in a loss of more than 100,000 jobs so far this year, lower profits and falling production.
However, according to the latest Commerce survey of businesses, taken in April, manufacturers plan to spend 10 percent more this year than last, adjusted for inflation, compared with a 3.8 percent rise for nonmanufacturing industries.
Prices of capital goods rose 0.9 percent last year and are now projected to rise 2.9 percent this year, Commerce said. The government previously reported that capital goods costs would rise 1.3 percent this year.
The mining and oil industries plan to reduce spending by 5.9 percent. The utilities industry will cut back by 1.6 percent, Commerce said.
The transportation industry, which includes automobile and aircraft manufacturers, said it expects to spend 2.7 percent more this year, compared with an earlier estimate of 2.4 percent.
In current dollars, businesses said they planned to spend $386.1 billion this year.
Current-dollar spending for manufacturing declined 0.4 percent in the first quarter, after increasing 2.9 percent in the fourth quarter last year.
Some economists said that business spending may pick up later this year and next year because of the recent decline in interest rates, which were not taken into account in the Commerce survey.
However, possible drawbacks could be the continued weakness in profits, which declined 0.8 percent during the first quarter. Economists also said that if interest rates start to rise, spending plans might drop off. An added problem could be uncertainty over the passage of a tax overhaul plan and what effects it would have on capital investment.
"It is an encouraging survey," said Robert Ortner, the Commerce Department's chief economist. The high rate of spending planned by manufacturers shows that those industries battered by imports plan to become more competitive, he said.
"That's the area that really needs" more modernization and expansion, he said of manufacturers. Now they still have tax incentives to make investments and interest rates have declined in recent weeks.