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Plant and equipment expenditures, of the four quarters of 1985.

Plant and Equipment Expenditures, of the Four Quarters of 1985

BUSINESS plans to spend $384.0 billion for new plant and equipment (P&E) in 1985, 8.3 percent more than in 1984, according to the BEA survey conducted in July and August (tables 1 and 2, and chart 1).1 Spending was $354.4 billion in 1984, 16.3 percent more than in 1983.

1. The survey covers expenditures both for new facilities and for expansion or replacement of existing facilities that are chargeable to fixed asset accounts and for which depreciation or amortization accounts are ordinarily maintained. The survey excludes expenditures for land and mineral rights; maintenance and repair; used plant and equipment, including that purchased or acquired through mergers or acquisitions; assets located in foreign countries; residential structures; and a few other items.

The estimates presented are universe totals of P&E expenditures in the United States based on sample data complied from reports on a company basis, not from separate reports for plants or establishments. A company's capital expenditures are assigned to a single industry in accordance with the industry classification of the company's principal product or service.

P&E expenditures differ from nonresidential fixed investment, which is a component of GNP, in type of detail, data sources, coverage, and timing. For further information, see pages 24-25 of the February 1985 SURVEY OF CURRENT BUSINESS.

The latest estimate of planned spending for 1985 is $2.1 billion lower than that reported in the survey conducted in April and May. A. 1.6-percent downward revision in manufacturing industries more than offset a 0.2-percent upward revision in nonmanufacturing industries. The previous survey showed planned spending of $386.1 billion for 1985, 9.2 percent more than 1984 spending.2

2. Spending plans have been adjusted for systematic reporting biases. Quarterly estimates were adjusted for each industry, for each quarter of the year, based on the median of the ratios of planned to actual spending for that quarter in the preceding 8 years. Before adjustment, planned spending for 1985 was $384.43 billion for "all industries,' $157.93 billion for manufacturing, and $226.50 billion for nonmanufacturing. The net effect of the adjustments was to lower manufacturing $4.48 billion and to raise nonmanufacturing $4.03 billion.

Real spending--capital spending adjusted to remove price changes--is estimated to increase 5.8 percent in 1985. Real spending increased 15.3 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.3 The capital goods price deflator for "all industries' increased 0.9 percent in 1984 and is projected by BEA to increase 2.4 percent in 1985.(3)

3. Specifically, the current-dollar figures reported by survey respondents are adjusted using implicit price deflators derived from unpublished detailed estimates in the national income and product accounts of current- and constant-dollar nonresidential fixed investment (adjusted to a P&E basis). To estimate planned real spending, the implicit price deflator for each industry is projected using its growth rate over the latest four quarters for which it is available.

Current-dollar spending in the second quarter of 1985 increased 4.5 percent, to an annual rate of $387.8 billion, following a 0.8-percent increase in the first; second-quarter spending was 0.7 percent higher than anticipated in the previous survey. Plans reported in the latest survey indicate a 0.4-percent increase in the third quarter and a 0.5-percent decline in the fourth.

Real spending increased 4.4 percent in the second quarter of 1985, following a 0.4-percent decline in the first. Estimates indicate declines of 0.4 percent in the third quarter and 0.8 percent in the fourth.

Although actual spending in the second quarter of 1985 was above plans, planned spending for the year was revised downward slightly. Indicators of the investment outlook were mixed in the second quarter. Factors favorable to investment included increases in both corporate cash flow and real final sales of GNP, as well as the continued decline in interest rates. Factors less favorable included declines in net new capital appropriations, new orders for nondefense capital goods, corporate profits, and the manufacturing capacity utilization rate.

Manufacturing Programs

In manufacturing, current-dollar spending increased 6.0 percent in the second quarter of 1985, to an annual rate of $154.3 billion, following a 0.9-percent decline in the first. Durable goods industries increased 5.9 percent in the second quarter; nondurables, 6.1 percent. Manufacturers plan a 2.3-percent increase in the third quarter and a 1.2-percent decline in the fourth.

For the year 1985, manufacturers plan to spend $153.4 billion, 10.5 percent more than in 1984; in the previous survey, a planned increase of 12.7 percent was reported. Manufacturers' spending increased 19.5 percent in 1984, following a decline of 3.7 percent in 1983.

Durable goods industries plan an 11.1-percent increase in 1985. The largest increase is in motor vehicles, 29.0 percent; both domestic and foreign manufacturers have announced plans to open new U.S. plants and to expand and modernize existing plants. Large increases are also planned in "other durables,' 15.6 percent; blast furnaces-steel works, 10.4 percent; and electrical machinery, 10.2 percent. A decline of 6.2 percent is planned in nonferrous metals.

Nondurable goods industries plan a 10.0-percent increase in 1985. The largest increases are in rubber, 17.1 percent; food-beverage, 14.6 percent; paper, 13.8 percent; and "other nondurables,' 13.6 percent. A decline of 2.5 percent is planned in textiles and may be related to the completion of major expansion programs in 1984, as well as to intense foreign competition.

Real spending by manufacturers is estimated to increase 7.9 percent in 1985--8.1 percent in durables and 7.8 percent in nondurables. In 1984, durables increased 23.0 percent; nondurables, 16.4 percent.

Nonmanufacturing Programs

In nonmanufacturing, current-dollar spending increased 3.5 percent in the second quarter of 1985, to an annual rate of $233.5 billion, following a 1.9-percent increase in the first. Nonmanufacturing industries plan a 0.8-percent decline in the third quarter and a 0.1-percent decline in the fourth.

For the year 1985, nonmanufacturing industries plan to spend $230.5 billion, 6.9 percent more than in 1984; in the previous survey, a planned increase of 7.0 percent was reported. Nonmanufacturing industries' spending increased 14.3 percent in 1984, following a decline of 0.7 percent in 1983.

In 1985, the largest increases are planned in gas utilities, 20.2 percent, and air transportation, 19.9 percent. Increases of 10.4 percent and 6.7 percent are planned in "commercial and other' and railroads, respectively. Declines are planned in mining, 4.7 percent; electric utilities, 4.1 percent; and "other transportation,' 1.9 percent. In "other transportation,' most of the weakness is in trucking, which experienced declining traffic volume and lower profits through the first two quarters of 1985.

Real spending by nonmanufacturing industries is estimated to increase 4.4 percent in 1985; it increased 12.7 percent in 1984. Estimated increases in "commercial and other,' 6.6 percent, and transportation, 2.8 percent, more than offset estimated declines in mining, 6.3 percent, and public utilities, 0.2 percent.

Table: 1.--New Plant and Equipment Expenditures by Business: Percent Change From Preceding Year

Table: 2.--New Plant and Equipment Expenditures by Business in Current and Constant Dollars

Table: 3.--New Plant and Equipment Expenditures by Business in Constant (1972) Dollars: Percent Change From Preceding Year

Photo: CHART 1 New Plant and Equipment Expenditures
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Author:Seskin, Eugene P.; Sullivan, David F.
Publication:Survey of Current Business
Date:Sep 1, 1985
Words:1290
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