While the GDP growth in the 2nd quarter of 2021 was not as strong as some expected, it was still a healthy 6.5%. Importantly, business (non-residential fixed) investment in knowledge-related areas continues its strong growth. Investment in software grew by over 12% while R&D spending was up by over 6.3%. In contrast, total business investment in all other areas remains the same – due in large part to a decline in investment in transportation equipment.
Knowledge related business investments did not suffer as great a cutback as other business investments in the COVID-19 slowdown and have been growing since 2Q20. They now account for 57% of total business investment (up from 50% in 3Q19). Looking at only the two digital-related investments of ICT equipment and software, this subcategory makes up 40% of business investments.
[Note: I define knowledge-related investment as the combination of investment in Information Processing Equipment, R&D, and Software. The first of these three categories is reported in the GDP data as a subcategory of Non-residential Fixed Investment: Equipment. The latter two are reported as subcategories of Non-residential Fixed Investment: Intellectual Property Products.]