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Business stays bullish on capital spending, investing 9.4% more in '95.

American businesses say they will spend 9.4% more on new plant and equipment this year than they did in 1994. This forecast comes from a U.S. Commerce Department survey done this summer. Manufacturing firms will invest a whopping 26.1% more in 1995 than they did last year. Nonmanufacturing capital spending this year will show only a modest, 3.5% increase from 1994's level, however.

The survey of 30,000 companies updated one done late last year (reported here in the May issue). Companies earlier had projected only a 6.6% increase in 1995 outlays.

The stronger spending plans documented in the new survey (with a 75% response rate vs. a 70% rate in the original one) further suggest that businesses are increasingly optimistic that solid economic growth will be with us for some time to come.

After investing an estimated $549 billion in capital goods during 1994, companies currently plan to increase spending on new plant and equipment to some $600 billion this year.

The survey finds that the manufacturing sector accounts for 30.3% of all planned capital spending for 1995, well in excess of its 16% share of the total U.S. workforce.

Other signs point to a continuation of capital spending's important role in sustaining solid U.S. economic growth. Capacity utilization rates weakened during the spring and early summer. But they bounced back a bit during August. We expect to see this utilization rate resume a gradual upward trend in the months ahead, which should help to support current plans for capital spending increases.

What's more, a significant percentage of manufacturing firms queried in our monthly Cahners Business Confidence Survey tell us that they are poised to step up their current level of capital spending in the months ahead. In September, one-third of the companies surveyed told us that they planned to increase capital spending during the upcoming three months. This was up from fewer than 30% in June; following the Federal Reserve interest rate cut in July, this number had surged to 37.5%.

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Title Annotation:Commerce Department forecast
Author:Delano, Daryl
Publication:Modern Materials Handling
Date:Nov 1, 1995
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