Plant Investment Rise Seen Fueling Positive Growth

WASHINGTON — American businesses plan a strong 6.5% increase in plant and equipment spending this year, the government said Thursday, and economists said the investments will further economic expansion while tending to limit inflation.

Analysts said much of the spending will be on equipment to modernize production, which could reduce both costs and prices.

The Commerce Department survey, completed in May, estimates business investment at $451.43 billion for 1989, up from $423.69 billion in 1988. (The numbers were adjusted for inflation.)

Although the economy has been slowing this year, business spending plans have been expanding.

In a Commerce survey completed in December, businesses told the department that they planned to increase expansion and modernization spending 5.9% this year. A later survey, completed in March, raised that expected increase to 6.3%.

15 Months of Pressure

“Just about all of the increase is projected in equipment rather than physical plants,” according to Irwin L. Kellner, chief economist for Manufacturers Hanover in New York.

“This is good, in the sense that it shows that industry is aware that it has to improve product quality and reduce input costs,” he said. “To the extent that industry is more productive, it will hold down inflation.”

The Federal Reserve Board has been putting upward pressure on interest rates for 15 months, attempting to cool the economy and hold down inflation. The business spending forecast suggests that the slowdown is not about to turn into recession.

“Basically, this is a plus for the economy, both in terms of continued expansion and, over the longer time, helping relieve pressure on capacity and therefore limit the extent that price pressures will accelerate,” David M. Jones, chief economist for Aubrey G. Lanston & Co. in New York, said.

Both Jones and Kellner said that one drawback of increased spending is that much of the new equipment is expected to be imported.