We had some good economic news yesterday as the BEA’s Advanced Estimate showed GDP grew by an annual rate of 2.9% in 4Q 2022 and 2.1% for all of 2022. That is the second straight quarter of GDP growth after declines in both 1Q 2022 and 2Q 2022.
However, the data shows a decline in investment in knowledge-related areas [information processing equipment, software, and R&D]. The decline was largely in information processing equipment, where investment dropped by over 6.4%. Investment in R&D declined by 0.2% whereas investment in software grew by 3.2%. This is only the second time since the beginning of the pandemic that investment in knowledge-related areas has declined.
Overall business (non-residential fixed) investment was up slightly, led by strong growth in investment in transportation equipment.
Obviously, those knowledge-related sectors make up only a small fraction of our $25 trillion economy. But the willingness of businesses to invest in knowledge-related areas is a strong indicator of future economic growth. In that regard, the slowdown in information processing equipment investment should be seen as at least a yellow flag warning.
[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.]
The Intangible Economy 