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.]

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