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Plant and equipment expenditures, first and second quarters and second half of 1985.

BUSINESS plans to spend $384.4 billion for new plant and equipment (P&E) in 1985, 8.7 percent more than in 1984, according to the BEA survey conducted in January through March (tables 1 and 2, and chart 5). Spending was $353.5 billion in 1984, 16.0 percent more than in 1983. The latest estimate of planned spending for 1985 is $1.3 billion higher than the comparable estimate based on the survey conducted in October and November. That survey showed planned spending of $383.1 billion for 1985, 8.2 percent more than 1984 spending.

Real spending--capital spending adjusted to remove price changes--is estimated to increase 7.3 percent in 1985. Real spending increased 14.9 percent in 1984, following a decline of 0.8 percent in 1983 (tables 2 and 3). Estimates of real spending are computed from survey data on current-dollar spending and from estimated capital goods price deflators developed by BEA. The capital goods deflator prepared by BEA for "all industries" increased 1.0 percent in 1984 and is projected to increase 1.3 percent in 1985. Survey respondents reported a 4.7-percent increase in prices of capital goods purchased in 1984 and expect a 5.1-percent increase in 1985 (table 4). Respondents have overestimated capital goods price increases in 14 of the 15 years these data have been collected.

Current-dollar spending in the fourth quarter of 1984 increased 1.7 percent, to an annual rate of $367.2 billion, following a 3.7-percent increase in the third quarter; fourth-quarter spending was 0.5 percent lower than anticipated in the previous survey. Plans reported in the latest survey indicate a 3.5-percent increase in the first quarter of 1985, a 2-3-percent increase in the second, and little change from the first to the second half of 1985.

Real spending increased 1.2 percent in the fourth quarter of 1984, following a 3.4-percent increase in the third quarter. Estimates indicate a 3.3-percent increase in the first quarter of 1985, a 2.0-percent increase in the second, and a 0.6-percent decline from the first to the second half of 1985.

Other highlights of the survey are:

* Current-dollar spending for new plant increased 12.1 percent in 1984; spending for new equipment increased 18.1 percent. For plant, real spending increased 10.7 percent; for equipment, 16.5 percent (table 5).

* Manufacturers expect their sales to increase 9.2 percent in 1985; they reported an 11.1-percent increase for 1984, compared with an expected 11.5-percent increase. In nonmanufacturing, trade firms expect a 9.7-percent increase in 1985; they reported an 11.9-percent increase for 1984, compared with an expected 8.8-percent increase. Public utilities expect a 5.8-percent increase for 1985; they reported a 7.1-percent increase for 1984, compared with an expected 7.5-percent increase (table 6).

* Manufacturers expect the prices of the products and services they sell to increase at a slightly higher rate in 1985 than in 1984 (table 7). They expect prices to increase 3.9 percent in 1985; they reported a 3.6-percent increase for 1984, compared with an expected 4.7-percent increase. Public utilities expect a 3.5-percent increase for 1985; they reported a 2.2-percent increase for 1984, compared with an expected 7.6-percent increase.

The planned increase in 1985 capital spending is smaller than the actual increase in 1984 and may reflect the mixed investment climate at the time the survey was conducted. Factors favorable to new invesment included fourth-quarter increases in corproate profits and cash flow, as well as an increase in real final sales of GNP, following a decline in the third quarter. Factors less favorable to new investment included fourth-quarter declines in new orders for nondefense capital good and in the manufacturing capacity utilization rate. Net new capital appropriations in manufacturing were unchanged in the fourth quarter, largely because of an increase in cancellations; appropriations declined sharply in the third quarter. Interest rates--an important factor influencing capital-spending decisions--continued to decline in the fourth quarter of 1984, but increased late in the first quarter of 1985.

Manufacturing Programs

In manufacturing, current-dollar spending increased 2.9 percent in the fourth quarter of 1984, to an annual rate of $146.2 billion, following a 5.0-percent increase in the third quarter. Durable goods industries increased 4.1 percent in the fourth quarter; nondurables, 1.8 percent. Manufacturers plan a 3.3-percent increase in the first quarter of 1985, a 4.0-percent increase in the second, and a 0.5-percent decline from the first to the second half of 1985.

For the year 1985, manufacturers plan to spend $153.6 billion, 11.0 percent more than in 1984; the previous survey indicated a planned increase of 10.4 percent. Manufacturers' spending increased 19.1 percent in 1984, following a decline of 3.7 percent in 1983.

Durable goods industries plan a 13.7-percent increase in 1985; almost one-half of this increase is in motor vehicles, which plans a 38.2-percent increase. More than one-third of the planned increase in durables is in electrical machinery, blast furnaces-steel works, and "other durables," which plan increases of 13.5 percent, 13.3 percent, and 13.3 percent, respectively. The planned increase in motor vehicles follows a 52.4-percent increase in 1984; the continued strength was sustained by high profits and the need to modernize in the face of foreign competition. The planned increase in electrical machinery is less than the 1984 increase, but coincides with expected strength in 1985 sales and with high levels of research and developemnt in the semiconductor and defense-related segments of the industry, which may lead to new products and prcesses. The planned increase in blast furnaces-steel works follows a modest increase in 1984, which, in turn, followed a significant decline in 1983; the planned 1985 increase may indicate the need to catch up on investment deferred during the most recent recession. The planned increase in "other durables" is led by miscellaneous manufacturing, reflecting the need to modernize facilities to compete with imported goods, and by instruments, reflecting anticipated sales of high-technology and military-related products.

Nondurable goods industries plan an 8.5-percent increase in 1985; about two-thirds of the increase is in food-beverage, chemicals, and rubber, which plan increases of 17.0 percent, 13.3 percent, and 10.6 percent, respectively. The planned increase in food-beverage may be related to several recent acquisitions in this industry. The planned increase in chemicals follows strong 1984 profits resulting, in part, from lower oil prices, which significantly reduced production costs. In rubber, the planned 1985 increase, while less than one-half of the increase in 1984, amy reflect constraints on current capacity; the industry was operating at 92.3 percent of capacity in the fourth quarter of 1984. In petroleum, the relatively modest planned 1985 increase is principally in production activities (table 8).

Real spending by manufacturers is estimated to increase 10.4 percent in 1985--12.0 percent in durables and 8.7 percent in nondurables. In 1984, durables increased 22.4 percent; nondurables, 16.1 percent.

Nonmanufacturing Programs

In nonmanufacturing, current-dollar spending increased 0.9 percent in the fourth quarter of 1984, to an annual rate of $221.0 billion, following a 2.9-percent increase in the third quarter. Nonmanufacturing industries plan a 3.6-percent increase in the first quarter of 1985, a 1.2-percent increase in the second, and a 0.3-percent increase from the first to the second half of 1985.

For the year 1985, nonmanufacturing industries plan to spend $230.8 billion, 7.3 percent more than in 1984; the previous survey indicated a planned increase of 6.9 percent. Nonmanufacturing industries' spending increased 14.1 percent in 1984, following a decline of 0.7 percent in 1983.

In 1985, the largest increases are planned in gas utilities, 19.1 percent; "commercial and other," 10.4 percent; air transportation, 8.6 percent; and railroads, 8.5 percent. Electric utilities and mining plan declines of 2.6 percent and 2.3 percent, respectively. The planned increase in gas utilities follows a sizable increase in 1984. Gas tramissions companies are expanding in fast-growing regions, providing service to new production fields, and modernizing existing facilities. The planned increase in "commercial and other" accounts for most of the 1985 increase in nonmanufacturing. It may be related to increased competition brought about by deregulation in communication, efforts to automate and renovate facilities in wholesale and retail trade, and the continuing trend to finance capital expenditures by leasing arrangements in finance and insurance. In air transportation, the planned 1985 increase would be the first since 1982 and would follow the sizable decline in 1984. Airlines' profit positions improved in 1984 and several announced fleet modernization programs. The planned increase in railroads, while substantially less than the increase in 1984, reflects continued spending or replacement and improvement of rails and roadbeds Real spending by nonmanufacturing industries is estimated to increase 5.4 percent in 1985; it increased 12.4 percent in 1984. The largest increase for 1985 is in "commercial and other," 7.5 percent. Smaller increases are estimated for transportation, 2.4 percent, and for public utilities, 0.5 percent. A decline of 0.6 percent is estimated for mining.
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Author:Seskin, Eugene P.
Publication:Survey of Current Business
Date:Apr 1, 1985
Words:1539
Previous Article:Gross product by industry, 1984.
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