Newspaper article THE JOURNAL RECORD

Business Cuts Spending Plans for This Year

Newspaper article THE JOURNAL RECORD

Business Cuts Spending Plans for This Year

Article excerpt

WASHINGTON (AP) _ Business investment in factories and equipment, a major source of economic strength for the last two years, will slow in 1995 to a much more moderate pace, according to a government survey.

Analysts said another report, on first-time claims for unemployment benefits, may point to a weakening job market.

They were the latest signs that Federal Reserve interest rate increases were having the intended effect of cooling a potentially overheated economy that could fire up inflationary pressures.

The Commerce Department said Thursday that American businesses plan to boost capital spending by 6.6 percent this year, to $592.9 billion, less than half the 13.7 percent jump recorded in 1994.

Over the last two years, investment in plants and equipment has been the fastest rising category in spending, a fact often touted by the Clinton administration in claiming its policies spurred an investment-led economic recovery.

But there have been recent signs the expansion finally is being braked by seven short-term interest rate increases designed by the Federal Reserve over the past year to slow economic growth and head off any spurt in inflation.

"The boost is finally having an effect," said Michael Evans, head of the Evans Group, a Boca Raton, Fla., economic consulting service. "We've seen weakness in the last month or two in nearly every sector of the economy."

The spending projections are based on a survey of 21,000 companies from November through early February.

Economist Lynn Reaser of First Interstate Bancorp in Los Angeles noted the survey was taken before the last Fed interest rate increase Feb. 1 and cautioned that higher borrowing costs since then could cause even further cuts in investment spending.

In another report that could portend a slowing economy, the Labor Department said Thursday that first-time claims by newly laid-off Americans for unemployment benefits rose 2,000 last week to 349,000. …

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