Plant and equipment expenditures, the four quarters of 1984 Essay

BUSINESS plans to spend $307.6 billion for new plant and equipmentin 1984, 14.3 percent more than in 1983, according to the BEA quarterlysurvey 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 billionlower than that reported in June from the survey conducted in late Apriland May. That survey showed planned spending of $309.

0 billion for1984, 14.8 percent more than 1983 spending. A downward revision innonmanufacturing industries more than offset an upward revision inmanufacturing industries. Real spending is estimated to be $144.7 billion in 1984, 13.3percent more than in 1983; real spending declined 3.

6 percent in 1983(tables 3 and 4). Estimates of real spending are computed from thesurvey data on current-dollar spending plans and from estimated changesin capital goods price deflators prepared by BEA. The latest deflatorsdeveloped by BEA indicate that capital goods prices declined 1.3 percentin 1983 and will increase 0.9 percent in 1984. Current-dollar spending in the second quarter of 1984 increased 3.3percent, to an annual rate of $302.

7 billion, following a 3.2-percentincrease in the first quarter; second-quarter spending was 0.4 percentlower than planned spending reported 3 months ago. Plans reported in thelatest survey indicate a 4.5-percent increase in the third quarter and a0.7 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. Estimatesindicate a 4.2-percent increase in the third quarter and a 0.2-percentincrease in the fourth. In comparison to previous post-1950 recoveries, the currentrecovery in plant and equipment spending continues to be strong (chart4).

The 1984 real capital spending increase of 13.3 percent, ifrealized, would be the largest since a 15.2-percent increase in 1966.However, the planned 1984 increase should be viewed against thebackground of declines in real capital spending of 6.3 and 3.6 percentin 1982 and 1983, respectively. If plans are realized, real capitalspending in 1984 would be 2.

3 percent higher than the previous peak in1981. The strength in 1984 capital spending plans is consistent withrecent increases in several other indicators of future investmentactivity, including corporate profits and cash flow, capacityutilization, real final sales, and net new capital appropriations inmanufacturing. Indicators less favorable to investment activity includenew orders for nondefense capital goods, which–although up in thesecond quarter–have declined in recent months, and interest rates,which remain high. Manufacturing Programs In manufacturing, current-dollar spending increased 4.

0 percent inthe 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 thirdquarter and a 1.

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

Most of the upward revision in manufacturing for 1984 was indurable goods industries, which plan a 21.2-percent increase. Thelargest increases are planned in motor vehicles, 48.9 percent, and inelectrical machinery, 26.4 percent.

The increase in motor vehicles isbeing fueled, in part, by record profits. The increase in electricalmachinery reflects constraints on current capacity and continuingefforts to modernize. Large increases in 1984 capital spending are alsoplanned 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, 15.2percent; and chemicals, 14.

8 percent. Real spending by manufacturers is estimated to increase 15.0percent in 1984–17.4 percent in durables and 12.5 percent innondurables. In 1983, durables declined 6.6 percent and nondurables,2.

0 percent. Nonmanufacturing Programs In nonmanufacturing, current-dollar spending increased 2.7 percentin the second quarter of 1984, to an annual rate of $175.

0 billion,following a 1.7-percent increase in the first quarter. Declines inmining and electric utilities were more than offset by increases inother nonmanufacturing industries. Nonmanufacturing industries plan a3.

8-percent increase in the third quarter and little change in thefourth. For the year 1984, nonmanufacturing industries plan to spend $177.2billion, 12.4 percent more than in 1983; in June, a planned increase of14.3 percent was reported.

Downward revisions in mining, electricutilities, and “commercial and other” more than offset upwardrevisions in other nonmanufacturing industries. Nonmanufacturingindustries’ spending declined 3.3 percent in 1983 after a slightincrease of 0.

3 percent in 1982. In 1984, the largest increases are planned in gas utilities, 36.3percent; railroads, 32.5 percent; and “other transportation,”24.4 percent. The increase in gas utilities should be viewed againstthe relatively steep–18.1-percent decline–in 1983.

The increase inrailroads reflects strong profits and efforts to upgrade service; itfollows a 10.6-percent decline in 1983. In “othertransportation,” most of the strength is in trucking; deregulation has led to increased competition, which has been accompanied by spendingon fleet improvements. A 15.8-percent increase in spending is plannedin “commercial and other” for 1984. In mining, the increasefor 1984 was revised down to 10.

9 percent from 18.1 percent reported 3months ago and reflects, in part, adjustments for mergers that occurredduring recent months. Air transportation plans a decline of 22.9percent.

Real spending by nonmanufacturing industries is estimated toincrease 12.1 percent in 1984; it declined 3.0 percent in 1983. Thelargest increases for 1984 are in “commercial and other,” 15.3percent, and in mining, 14.4 percent.

Smaller increases are estimatedfor transportation, 8.3 percent, and for public utilities, 3.7 percent.

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