Amid Questions About GDP Growth, Knowledge-Related Investment is Strong

Economists are warning everyone to take today’s GDP numbers with a grain of salt. According to BEA’s Advanced Estimate, GDP grew by an annual rate of 2.6% in 3Q 2022. That is a healthy rate of growth and a turnaround from the declines in two quarters. But much of that growth was due to a smaller trade deficit and an increase in business investment in transportation equipment. Overall business (non-residential fixed) investment was up slightly, even though business investment in structures was down. Investment in knowledge-related areas [information processing equipment, software, and R&D] continued strong growth, up by 7.4%.

Obviously, those knowledge-related sectors make up only a small fraction of our $25 trillion economy. But the willingness of businesses to continue to increase their investments in knowledge-related areas is a strong indicator of future economic 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.]

Intangible Trade August 2022

Intangibles trade surplus continues to grow along historic trendlines

This morning’s trade date from the Bureau of Economic Analysis (BEA) shows an improvement in the U.S. trade deficit in August as imports declined more that exports. Imports were down by $3.7 billion from July; exports declined by a mere $0.7 billion. BEA also notes that the overall services surplus declined by $0.4 billion. However, the surplus in intangibles rose slightly with exports increasing more than imports. The difference is mainly due to an almost $0.6 billion decrease in the trade surplus in travel as American’s increased their foreign travel. [Note: I categorize travel as a tangible service.]

The trade surplus in intangibles has grown steadily since the beginning of the year. And, as the chart below shows (and as I have noted before), intangibles exports, imports and trade balance were basically on the historical trend line. This is also true for the various categories of intangibles. Even Financial Services, where the surplus rose dramatically in the first part of the pandemic due to a surge in exports, seems to have returned to the trend line.

In general, this most recent data is in line with my earlier analysis that the pandemic is not having a game-changing impact on trade in intangible.