Signs of Expansion

THE ECONOMY

Will the U.S. economy continue to expand in the year ahead? One reliable clue can be found in capital spending, the money that businessmen invest in new plant and equipment. This year's outlay will reach about $64.5 billion, and until recently, forecasters had expected little if any gain in 1969. Behind the pessimism were two negative portents: capital spending fell by an annual rate of $2 billion in this year's second quarter; and in the third quarter, the nation's plants were producing at 83.3% of capacity, a five-year low. Even so, economic signals are beginning to continued on next page foretell a rise in capital spending next year.

After a survey of businessmen's plans, the investment-advisory firm of Lionel D. Edie & Co. predicted that capital investment in 1969 will grow more than 7%. Last month the McGraw-Hill Survey projected an 8% gain. In its December issue, FORTUNE suggested that capital spending may rise 5% next year, though the increase might just about match the rise in capital-goods prices. Last week the Government joined the chorus of optimism. In the latest of a series of generally reliable surveys, the Commerce Department and the Securities and Exchange Commission projected a growth of up to 10% in plant and equipment outlays in 1969.

The outlook for capital spending has improved largely because general business conditions are looking better. Demand for steel is strong; output has climbed for four straight weeks. Sales of 1969-model autos have been racing at a record annual rate of 10.3 million cars (see story, p. 94). New factory orders rose 4% in October, the biggest improvement this year. Sales of new houses are increasing despite punitive price tags and pumped-up mortgage rates. Housing starts will probably rise from 1,290,000 in 1967, to 1,500,000 this year. Building-industry analysts anticipate about 1,700,000 in 1969 and a record 2 million in 1970.-At the same time, installment credit is ballooning.

Some economists still tend to be cautious about capital spending for next year. But businessmen make the decisions, and they are reacting to expanding order books and rising wages, which since March 1966 have gone up 12% to an average $2.92 per hour in the past two years. As a result, managers are increasing their investment in more efficient and possibly labor-saving plants and machines.

*The old record: 1,900,000 in 1950.

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