Businesses keep investment dollars in pockets

June 01, 2002 |

Total business spending for new plant and capital equipment, including new buildings, equipment and building retrofit/renovation work declined in every quarter of 2001. And preliminary data for the first quarter of 2002 shows the downturn continuing although its severity appears to be abating.

The current depressed business investment environment represents a dramatic turnaround from the unprecedented surge in capital spending experienced between 1993 and 2000. For that eight-year period, business investment spending increased at a average annual rate of 10 percent.

During 2001, total business capital spending was 3.2 percent lower than in 2000. The last year that overall capital spending had declined was in 1991 (down 4.9 percent from 1990).

Capital spending for nonresidential building construction did manage to eke out some marginal growth (0.9 percent) between 2000 and 2001, at the same time that spending for new equipment was contracting by 4.4 percent. But this was entirely on the strength of only one quarter of the year, the first quarter of 2001, when nonresidential building construction was still growing at 12.3 percent.

Business investment spending for buildings plunged over the final three quarters of last year, ending by posting an extraordinary 33.6 percent annualized loss during the final quarter of 2001.

Preliminary estimates for the first quarter of 2002 show overall capital spending contracting at a 5.7 percent annualized pace, less than half the rate of October-December 2001. Equipment and software investment almost held its ground, declining at a scant 0.5 percent annualized rate, its best performance in the past six quarters. But spending for nonresidential buildings plunged at 19.9 percent during January-March 2002, not as bad as in last year's final quarter, but still weaker than April-September 2001.

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