Plant and equipment expenditures, the four quarters of 1984.

Seskin, Eugene P. ; Landefeld, J. Steven

BUSINESS plans to spend $309.0 billion for new plant and equipment in 1984, 14.8 percent more than in 1983, according to the BEA quarterly survey conducted in late April and May (tables 1 and 2, and chart 2). Spending was $269.2 billion in 1983, 4.8 percent less than in 1982.

The latest estimate of planned spending for 1984 is $2.2 billion higher than the comparable estimate based on the survey conducted in late January and February and released in March. That survey showed planned spending of $306.8 billion for 1984, 14.0 percent more than 1983 spending.

Real spending is estimated to be $146.0 billion in 1984, 14.8 percent more than in 1983; real spending declined 3.9 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 prices declined 0.9 percent in 1983 and will remain unchanged in 1984. The deflators prepared in March, adjusted to the reduced industry coverage, indicated that capital goods prices would increase 1.2 percent in 1984. The latest projection of 1984 capital goods prices incorporates revised estimates of price levels in the fourth quarter of 1983, the decline in capital goods prices in the first quarter of 1984, and a shift to purchases of capital goods with relatively lower prices. (If the previous estimates of capital goods prices were used to adjust the latest survey results, a 13.4-percent increase in real spending would be indicated for 1984.)

Current-dollar spending in the first quarter of 1984 increased 3.2 percent to an annual rate of $293.1 billion, following a 5.2-percent increase in the fourth quarter of 1983; first-quarter spending was 1.1 percent lower than planned spending reported 3 months ago. Plans reported in the latest survey indicate a 3.6-percent increase in the second quarter of 1984, a 3.5-percent increase in the third, and a 3.2-percent increase in the fourth.

Real spending increased 3.6 percent in the first quarter of 1984, following a 4.6-percent increase in the fourth quarter of 1983. Estimates indicate a 3.6-percent increase in the second quarter of 1984, a 3.6-percent increase in the third, and a 3.1-percent increase in the fourth.

The first-quarter increase in real capital spending and the planned increases in the remaining quarters of 1984 would result in spending at or above the prerecession peaks for the major industry groups shown except for mining and transportation (table 5). First-quarter spending for "all industries" was at an annual rate of $138.5 billion, 3.3 percent below the prerecession peak of $143.2 billion in the third quarter of 1981 (chart 3). The planned increases during 1984, if realized, would result in fourth-quarter spending at an annual rate of $153.3 billion, 7.0 percent above the prerecession peak. Manufacturers plan spending in the fourth quarter at an annual rate of $62.0 billion, which--as a result of the 17.7-percent peak-to-trough decline during the last recession--is only 1.4 percent above the prerecession peak of $61.2 billion in the first quarter of 1981. nonmanufacturing industries plan spending in the fourth quarter at an annual rate of $91.2 billion, 11.0 percent above the prerecession peak of $82.2 billion in the third quarter of 1981.

The 1984 planned increases in capital spending are consistent with first-quarter increases in other indicators of future investment activity, including capacity utilization, corporate profits and cash flow, net new capital appropriations, and new orders for nondefense capital goods. An important factor in determining the extent to which the spending plans will be realized will be the future path of interest rates, which have increased during recent months. Manufacturing Programs

In manufacturing, current-dollar spending increased 5.5 percent in the first quarter of 1984, to an annual rate of $122.8 billion, following a 4.7-percent increase in the fourth quarter of 1983. Durable goods industries increased 7.5 percent in the first quarter and nondurables, 3.8 percent. Manufacturers plan a 2.6-percent increase in the second quarter of 1984, a 3.5-percent increase in the third, and a 4.2-percent increase in the fourth.

For the year 1984, manufacturers plan to spend $128.8 billion, 15.5 percent more than in 1983; in March, a planned increase of 16.3 percent was reported. Manufacturers' spending declined 6.8 percent in 1983 and 5.6 percent in 1982.

Durable goods industries plan an 18.6-percent increase in 1984. The largest increases are planned in motor vehicles, 38.9 percent, and in electrical machinery, 23.5 percent. The planned increase in motor vehicles reflects record 1983 profits and a continuing modernization of production facilities. The planned increase in electrical machinery reflects strength in anticipated sales as well as constraints on current capacity; the Federal Reserve Board estimated that the industry was operating at 91.2 percent of capacity in the first quarter of 1984. Spending by both industries is characteristic of a factor common to all manufacturing industries--the need to catch up on capital spending deferred during the recession.

Nondurable goods industries plan a 12.7-percent increase in 1984. The increases planned in textiles (24.4 percent), "other nondurables" (17.6 percent), rubber (17.5 percent), and paper (16.0 percent) are large. The increase in the total is moderated by smaller increases in petroleum (10.4 percent), which accounts for over one-third of total spending by nondurable goods industries, and food-beverage (7.5 percent). The recovery in capital spending by the petroleum industry has lagged behind other manufacturing industries as a result of rates of capacity utilization and profits that have been low by that industry's standards; food-beverage has also experienced lower than normal profits and expects relatively modest increases in 1984 sales.

Real spending by manufacturers is estimated to increase 13.8 percent in 1984--15.5 percent in durables and 12.1 percent in nondurables. Spending increased 5.1 percent in the first quarter of 1984, to an annual rate of $56.8 billion--12.6 percent above the recession trough of $50.4 billion in the fourth quarter of 1982, but 7.3 percent below the prerecession peak of $61.2 billion in the first quarter of 1981 (table 5). Manufacturers plan a 1.6-percent increase in the second quarter of 1984, a 3.7-percent increase in the third, and a 3.8-percent increase in the fourth.

Durable goods industries increased real spending by 6.2 percent in the first quarter of 1984, to a level 18.2 percent above the recession trough, but 8.0 percent below the prerecession peak. Nondurable goods industries increased real spending 4.0 percent in the first quarter, to a level 10.0 percent above the recession trough, but 6.8 percent below the prerecession peak. Nonmanufacturing Programs

In nonmanufacturing, current-dollar spending increased 1.7 percent in the first quarter of 1984, to an annual rate of $170.4 billion, following a 5.5-percent increase in the fourth quarter of 1983. Declines in air transportation, communications, and railroads were more than offset by increases in other nonmanufacturing industries. Nonmanufacturing industries plan a 4.4-percent increase in the second quarter of 1984, 3.6-percent increase in the third, and a 2.4-percent increase in the fourth.

For the year 1984, nonmanufacturing industries plan to spend $180.2 billion, 14.3 percent more than in 1983; in March, a planned increase of 12.3 percent was reported. 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, 34.2 percent; 'other transportation," 25.5 percent; and railroads, 25.0 percent. Mining and "commercial and other" plan increases of 18.1 percent and 17.9 percent, respectively. Air transportation plans a decline of 29.2 percent. The planned increases in several of these industries--mining, gas utilities, and railroads, in particular--should be viewed against the recent declines in their capital spending during the recession.

Real spending by nonmanufacturing industries is estimated to increase 15.4 percent in 1984. Spending increased 2.6 percent in the first quarter of 1984, to an annual rate of $81.8 billion--12.9 percent above the recession trough of $72.4 billion in the first quarter of 1983, but slightly below the prerecession peak of $82.2 billion in the third quarter of 1981. Nonmanufacturing industries plan a 5.0-percent increase in the second quarter of 1984, a 3.5-percent increase in the third, and a 2.6-percent increase in the fourth.

In nonmanufacturing, first-quarter real spending by several industries--mining, wholesale and retail trade, and finance and insurance--was approximately 30 percent above their respective recession troughs. However, in mining, spending was still 20 percent below its prerecession peak. Spending by the transportation and by the communication industries was only slightly above their recession troughs, and well below their prerecession peaks.