Growth was led by increased investment in information processing equipment but all other nonresidential fixed private investment actually declined, with investment in transportation equipment taking a big hit.
Business (non-residential fixed) investment in knowledge-related areas grew at an annual rate of 14.2%. This grow was due to a 22.7% increase in information processing equipment (which had declined in the previous two quarters). Investment in software was up by an annual rate of 12.2% and R&D spending up by 6.5%.
Total business investment in all other areas declined by an annual rate of 14.6% — driven in large part by a drop in investment in transportation equipment of 45.3%. Investments in non-residential structures and in “other equipment” were down by 11.9% and 11.7% respectively. Investments in non-residential structures have declined in 8 of the past 9 quarters (1Q 2021 being the one exception). The continuing declines in investments in non-residential structures and transportation equipment are especially worrisome.
In my earlier posting on 3Q 2021 I expressed concern that the decline in investment in information processing equipment in 2Q 2021 and 3Q 2021 may be a reflection of the ongoing semiconductor shortage. Hopefully the rise in investment in information processing equipment in 4Q 2021 is due to steps to alleviate that shortage.
As I also noted in last quarter’s posting, 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 59% of total business investment (up from 50% in 3Q19). Looking at only the two digital-related investments of information processing equipment and software, this subcategory makes up 42% 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.]