3Q GDP and investment

Obviously the big story with today’s GDP numbers is the (partial) rebound in consumer spending.

But the more important story for long run economic growth is what is (and is not) happening in business investment.

Overall, private fixed non-residential investment grew in 3Q led by investment in equipment. Business investment in equipment grew in 3Q almost to the pre-slowdown level. While all categories of equipment investment increased in 3Q, the biggest gain was in spending on information processing equipment increased – which had also increased significantly in the 2nd quarter. Such an increase bodes well for future growth.

That was the good news. The bad news is that investment in intellectual property products – the seed corn for future growth – actually declined in 3Q. Business spending on R&D declined in the 3rd quarter, as did investment in the creation of entertainment, literary, and artistic originals. Investment in software up was up slightly.

The slowdown in R&D spending is especially troublesome. It is always tempting for companies to cut back on R&D when times are tight. But given the concern about low R&D spending nationally in the U.S., the continued cut back when other parts of the economy may be starting to bounce back signals a level of uncertainly about future growth.

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