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Plant and equipment expenditures, the four quarters of 1984 Essay

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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