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Plant and equipment expenditures, the four quarters of 1984.

BUSINESS plans to spend $307.6 billion for new plant and equipment in 1984, 14.3 percent more than in 1983, according to the BEA quarterly survey conducted in late July and August (tables 1 and 2, and chart 3). Spending was $269.2 billion in 1983, 4.8 percent less than in 1982.

The latest estimate of planned spending for 1984 is $1.4 billion lower than that reported in June from the survey conducted in late April and May. That survey showed planned spending of $309.0 billion for 1984, 14.8 percent more than 1983 spending. A downward revision in nonmanufacturing industries more than offset an upward revision in manufacturing industries.

Real spending is estimated to be $144.7 billion in 1984, 13.3 percent more than in 1983; real spending declined 3.6 percent in 1983 (tables 3 and 4). Estimates of real spending are computed from the survey data on current-dollar spending plans and from estimated changes in capital goods price deflators prepared by BEA. The latest deflators developed by BEA indicate that capital goods prices declined 1.3 percent in 1983 and will increase 0.9 percent in 1984.

Current-dollar spending in the second quarter of 1984 increased 3.3 percent, to an annual rate of $302.7 billion, following a 3.2-percent increase in the first quarter; second-quarter spending was 0.4 percent lower than planned spending reported 3 months ago. Plans reported in the latest survey indicate a 4.5-percent increase in the third quarter and a 0.7 percent increase in the fourth.

Real spending increased 2.6 percent in the second quarter of 1984, following a 4.1-percent increase in the first quarter. Estimates indicate a 4.2-percent increase in the third quarter and a 0.2-percent increase in the fourth.

In comparison to previous post-1950 recoveries, the current recovery in plant and equipment spending continues to be strong (chart 4). The 1984 real capital spending increase of 13.3 percent, if realized, would be the largest since a 15.2-percent increase in 1966. However, the planned 1984 increase should be viewed against the background of declines in real capital spending of 6.3 and 3.6 percent in 1982 and 1983, respectively. If plans are realized, real capital spending in 1984 would be 2.3 percent higher than the previous peak in 1981.

The strength in 1984 capital spending plans is consistent with recent increases in several other indicators of future investment activity, including corporate profits and cash flow, capacity utilization, real final sales, and net new capital appropriations in manufacturing. Indicators less favorable to investment activity include new orders for nondefense capital goods, which--although up in the second quarter--have declined in recent months, and interest rates, which remain high.

Manufacturing Programs

In manufacturing, current-dollar spending increased 4.0 percent in the second quarter of 1984, to an annual rate of $127.7 billion, following a 5.5-percent increase in the first quarter. Durable goods industries increased 2.1 percent in the second quarter and nondurables, 5.7 percent. Manufacturers plan a 5.3-percent increase in the third quarter and a 1.6-percent increase in the fourth.

For the year 1984, manufacturers plan to spend $130.4 billion, 16.9 percent more than in 1983; in June, a planned increase of 15.5 percent was reported. Manufacturers' spending declined 6.8 percent in 1983 and 5.6 percent in 1982.

Most of the upward revision in manufacturing for 1984 was in durable goods industries, which plan a 21.2-percent increase. The largest increases are planned in motor vehicles, 48.9 percent, and in electrical machinery, 26.4 percent. The increase in motor vehicles is being fueled, in part, by record profits. The increase in electrical machinery reflects constraints on current capacity and continuing efforts to modernize. Large increases in 1984 capital spending are also planned in "other durables," 21.8 percent; fabricated metals, 16.0 percent; nonelectrical machinery, 13.6 percent; and nonferrous metals, 13.1 percent.

Nondurable goods industries plan a 13.2 percent increase in 1984. The largest increases are planned in Textiles, 21.9 percent; rubber, 19.0 percent; "other nondurables," 17.6 percent; paper, 15.2 percent; and chemicals, 14.8 percent.

Real spending by manufacturers is estimated to increase 15.0 percent in 1984--17.4 percent in durables and 12.5 percent in nondurables. In 1983, durables declined 6.6 percent and nondurables, 2.0 percent.

Nonmanufacturing Programs

In nonmanufacturing, current-dollar spending increased 2.7 percent in the second quarter of 1984, to an annual rate of $175.0 billion, following a 1.7-percent increase in the first quarter. Declines in mining and electric utilities were more than offset by increases in other nonmanufacturing industries. Nonmanufacturing industries plan a 3.8-percent increase in the third quarter and little change in the fourth.

For the year 1984, nonmanufacturing industries plan to spend $177.2 billion, 12.4 percent more than in 1983; in June, a planned increase of 14.3 percent was reported. Downward revisions in mining, electric utilities, and "commercial and other" more than offset upward revisions in other nonmanufacturing industries. Nonmanufacturing industries' spending declined 3.3 percent in 1983 after a slight increase of 0.3 percent in 1982.

In 1984, the largest increases are planned in gas utilities, 36.3 percent; railroads, 32.5 percent; and "other transportation," 24.4 percent. The increase in gas utilities should be viewed against the relatively steep--18.1-percent decline--in 1983. The increase in railroads reflects strong profits and efforts to upgrade service; it follows a 10.6-percent decline in 1983. In "other transportation," most of the strength is in trucking; deregulation has led to increased competition, which has been accompanied by spending on fleet improvements. A 15.8-percent increase in spending is planned in "commercial and other" for 1984. In mining, the increase for 1984 was revised down to 10.9 percent from 18.1 percent reported 3 months ago and reflects, in part, adjustments for mergers that occurred during recent months. Air transportation plans a decline of 22.9 percent.

Real spending by nonmanufacturing industries is estimated to increase 12.1 percent in 1984; it declined 3.0 percent in 1983. The largest increases for 1984 are in "commercial and other," 15.3 percent, and in mining, 14.4 percent. Smaller increases are estimated for transportation, 8.3 percent, and for public utilities, 3.7 percent.
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Author:Seskin, Eugene P.
Publication:Survey of Current Business
Date:Sep 1, 1984
Words:1071
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