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Report Puts 1989 Business Spending At $451.64 Billion

December 28, 1988

WASHINGTON (AP) _ Businesses, rushing to expand and modernize production facilities, are planning to boost spending to a record $451.64 billion next year, the government reported today.

The Commerce Department said that a survey completed in November found businesses planning to increase spending by 5.9 percent in 1989 over a projected 1988 spending level of $426.49 billion. All of these figures have been adjusted to take inflation into account.

If these spending plans are realized, it would mean that 1988 and 1989 would set back-to-back spending records, surpassing the previous one-year spending mark of $391.58 billion set in 1958.

The rise in spending this year is estimated to be 10.8 percent, which would be the biggest percentage increase since a 16.6 percent rise in 1984, a year in which American businesses were still recovering from the steep 1981-82 recession.

The projected growth in business spending would spell good news for the economy next year, providing part of the momentum needed to keep the country out of a recession.

In addition, spending for business investment to replace aging plants and equipment and expand production facilities helps to boost the U.S. productivity rate, something that has been increasingly important with the stiff competition the country now faces from overseas.

So far this year, business investment spending and the boom in export sales have contributed about half of total economic growth.

While economists are predicting the pace of economic activity will slow next year, they are still looking for improving export sales and an accompanying investment boom to supply much of the momentum to keep the recovery alive.

The 5.9 percent investment increase for all industries includes a 3.5 percent planned rise for manufacturing companies and a 7.4 percent rise for companies engaged in mining, transportation and other non-manfacturing areas.

In manufacturing, the department is projecting spending will rise to an inflation-adjusted $170.15 billion following an even larger 12.7 percent increase in 1988.

The manufacturing increase includes a 2.2 percent rise in spending at plants making durable goods and a 4.7 percent increase at factories producing non-durable goods, items not expected to last three years.

Before adjusting for inflation, the department projected that spending for 1989 would rise by 6 percent to $455.96 billion after an anticipated increase of 10.4 percent this year.

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