Businesses plan to increase spending on new plant and equipment this year by 5.8 percent, far below their 15.3 percent increase in 1984, the Commerce Department reported yesterday.
Most of the new spending already has occurred, the government said, suggesting that capital expenditures will contribute little to growth in the second half of the year. The Reagan administration has forecast a sharp rebound in output through the end of this year.
Spending increased 4.4 percent in the second quarter following a 0.4 percent decline in the first, Commerce said. Businesses said they expect a 0.4 percent decline in real spending in the third quarter and a 0.8 percent decline in the fourth. The average for all of 1985 would end up 5.8 percent above last year's average.
The spending plans for the year were revised downward from the 6.2 percent estimate made in April and May. The current spending plans were reported in a survey taken in July and August, Commerce said.
The drop in planned expenditures underscores the economy's current sluggish performance and suggests that businesses do not expect a sharp rebound in purchasing that would require them to expand their operations very much, economists said.
Commerce Secretary Malcolm Baldrige said that demand for domestic output should "rise faster than it has in the past four quarters" and that the incentives "to buy capital goods and the earnings to purchase them should support continued growth in investment at least through next year," although not at the pace of the past two years.
"Nonfarm businesses have scaled down their capital spending plans for 1985, but this year's anticipated 5.8 percent real increase in plant and equipment purchases is still a strong gain following last year's 15.3 percent advance," Baldrige said.
Private economists, however, said that the capital spending report shows further weakness in the economy.
"The survey shows really quite weak capital spending in real terms expected for the second half of the year, which is a negative indication for the economy," said Allen Sinai, chief economist for Shearson Lehman Brothers.
Manufacturers revised their spending plans down from a 10 percent increase in the April survey to a 7.9 percent rise. Real manufacturing spending on plant and equipment increased 19.8 percent last year.
However, nonmanufacturers revised their spending plans up from the 3.8 percent increase estimated this spring to 4.4 percent in the most recent survey.
Sinai said the downward revisions in plans by manufacturers reflected the problems that that sector of the economy is having because of fierce competition from foreign suppliers. "It follows along the lines of the way the economy is behaving," Sinai said. "Continued disappointment of manufacturing is showing up in their capital spending plans. I think we'll see more of the same."
Businesses plan to spend $384 billion in current dollars for new plant and equipment this year, Commerce said. Spending, unadjusted for inflation, was $354.4 billion in 1984, 16.3 percent more than in 1983.
Those planning large spending increases are makers of motor vehicles, blast furnaces for steel works, electrical machinery, rubber products, foods and beverages, and paper. Declines are expected for textiles and nonferrous metals industries.