GDP data looks bad on the surface but shows continued strong growth in knowledge-related business investment

Business investment in knowledge-related areas of information processing equipment, software, and R&D increased in 1Q22 and all other nonresidential fixed private investment rebounded after declining in the latter half of last year.

On the surface, this morning’s numbers for US GDP for the 1st quarter of 2022 are troubling with GDP dropping by 1.4%. But there is better news below the surface.

Business (non-residential fixed) investment in knowledge-related areas continued its strong growth – up at an annual rate of 12.5%. This grow was due to a 20.7% increase in information processing equipment. Investment in software was up by an annual rate of 9.4% and R&D spending up by 6.1%. Total business investment in all other areas rose by rose at an annual rate of 3.7% — driven in large part by a rebound in investment in industrial equipment and a smaller drop in investment in transportation equipment.

Obviously, this continued business investment bodes well for future growth.

[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.]