Plant and equipment expenditures, the four quarters of 1988.

Seskin, Eugene P. ; Sullivan, David F.

Effective October 1, 1988, the Bureau of the Census assumed responsibility for conducting the Plant and Equipment Expenditures survey. Results from the next survey, which will be conducted in October and November, will be released by Census on December 28, 1988.

The estimates in this article reflect revised seasonal-adjustment factors for 1985-88. In addition, estimates of real spending are derived using deflators that reflect the revision of the national income and product accounts for 1985-88 released in July. Estimates for earlier years are not affected.

BUSINESS plans to spend $430.9 billion for new plant and equipment (P&E) in 1988, 10.6 percent more than in 1987, according to the BEA survey conducted in July and August (tables 1 and 2, and chart 1).' Spending was $389.7 billion in 1987, 2.7 percent more than in 1986.

The latest estimate of planned spending for 1988 is little changed from that reported in June for the survey conducted in April and May. 2 The previous survey showed planned spending of $430.2 billion for 1988, 10.7 percent more than in 1987.

Real spending-capital spending adjusted to remove price changes-is estimated to increase 11.6 percent in 1988; in the previous survey, an 11.9percent increase was estimated, Real spending increased 2.3 percent in 1987, following a decline of 3.9 percent in 1986 (tables 2 and 3). Estimates of real spending are calculated from survey data on current-dollar spending and from estimated capital goods price deflators developed by BEA. 3 The capital goods deflator for "all industries" is projected by BEA to decline 0.9 percent in 1988; the deflator increased 0.4 percent in 1987 and 2.0 percent in 1986.

Current-dollar spending in the second quarter of 1988 increased 3.6 percent, to an annual rate of $426.9 billion, following a 1.3-percent increase in the first. Second-quarter spending was 0.5 percent lower than anticipated in the previous survey. Plans reported in the latest survey indicate a 3.2-percent increase in the third quarter and a 0.9-percent increase in the fourth.

Real spending increased 4.0 percent in the second quarter of 1988, following a 1.5-percent increase in the first. Estimates indicate a 3.2-percent increase in the third quarter and a 1.3percent increase in the fourth.

The increase in capital spending in the second quarter of 1988 and the large planned increase for the year are consistent with many indicators of future investment activity. In the second quarter, several indicators of future demand were favorable to new investment: The fifth consecutive quarterly increases in both new orders of durable goods and new orders of nondefense capital goods; an increase in real final sales of GNP, both including and excluding transactions of the Commodity Credit Corporation, following an increase in the first quarter and little change in the fourth quarter of 1987; and the seventh consecutive increase in the manufacturing capacity utilization rate, to its highest level since the fourth quarter of 1979. However, indicators of corporate ability to finance capital expenditures were mixed in the second quarter. Domestic corporate profits (both before and after tax) increased for the second consecutive quarter, while domestic corporate net cash flow declined, following an increase in the first quarter. In addition, interest rates as measured by Moody's corporate bond yield increased, following a decline in the first quarter.

Manufacturing Programs

In manufacturing, current-dollar spending increased 1.9 percent in the second quarter of 1988, to an annual rate of $161.7 billion, following a 4.2percent increase in the first. Durable goods increased 1.6 percent in the second quarter, and nondurables increased 2.3 percent. Manufacturers plan a 2.9-percent increase in the third quarter and a 0.7-percent increase in the fourth.

For the year 1988, manufacturers plan to spend $163.6 billion, 12.1 percent more than in 1987; in the previous survey, the same percentage increase was reported. Manufacturers' spending increased 2.2 percent in 1987, following a 7.0-percent decline in 1986.

Durable goods industries plan a 9.9percent increase for 1988; the largest planned increases are in nonferrous metals, blast furnaces-steel works, and electrical machinery. Increases are also planned in all the other durables industries, except motor vehicles, which plans a 4.6-percent decline. Nondurable goods industries plan a 14.2-percent increase for 1988; the largest planned increase is in paper. Increases are also planned in foodbeverage, "other nondurables," chemicals, petroleum, rubber, and textiles.

Real spending by manufacturers is estimated to increase 12.5 percent for 1988-11.7 percent in durables and 13.2 percent in nondurables. In 1987, real spending increased 1.5 percent-2.9 percent in durables and 0.3 percent in nondurables.

Nonmanufacturing Programs

In non manufacturing, current-dollar spending increased 4.7 percent in the second quarter of 1988, to an annual rate of $265.3 billion, following a 0.5-percent decline in the first. Nonmanufacturing industries plan a 3.3-percent increase in the third quarter and a 1.0-percent increase in the fourth.

For the year 1988, nonmanufacturing industries plan to spend $267.4 billion, 9.7 percent more than in 1987; in the previous survey, a planned increase of 9.9 percent was reported. Nonmanufacturing industries' spending increased 3.0 percent in 1987, following a 1.3-percent increase in 1986. For 1988, the largest planned increases are in railroads and air transportation. Increases are also planned in mining, "commercial and other," "other transportation," gas utilities, and electric utilities.

Real spending by nonmanufacturing industries is estimated to increase 11.0 percent for 1988; it increased 2.8 percent in 1987. For 1988, the largest increases are estimated in "commercial and other" and transportation; smaller increases are estimated in mining and public utilities.