Washington, DC — Ben Leubsdorf reports in The Wall Street Journal that American businesses are building fewer buildings and buying fewer machines, but they have continued to spend on a key ingredient of future productivity and economic growth: research and development.
Private fixed investment in R&D surged at a 17% annual rate in the second quarter, adjusted for inflation and seasonal variations, according to the Commerce Department.
That was the strongest burst of R&D spending growth since the third quarter of 2006, and it came as business investment declined for both equipment and structures.
Firms can postpone capacity-expanding investments in machinery and plants when business is slow, said Daniel Meckstroth, chief economist at the Manufacturers Alliance for Productivity and Innovation, a trade group.
Private fixed investment in R&D surged at a 17% annual rate in the second quarter, adjusted for inflation and seasonal variations, according to the Commerce Department.
That was the strongest burst of R&D spending growth since the third quarter of 2006, and it came as business investment declined for both equipment and structures.
Firms can postpone capacity-expanding investments in machinery and plants when business is slow, said Daniel Meckstroth, chief economist at the Manufacturers Alliance for Productivity and Innovation, a trade group.
But “R&D is like your seed corn,” he said. “In order to be competitive, you’ve got to have products in the pipeline.”
For example, the oil-price slump that began in mid-2014 has driven a pullback in spending on new wells and drilling equipment.
Still, General Electric Co. earlier this month inaugurated an Oil & Gas Technology Center in Oklahoma City. Lorenzo Simonelli, head of the company’s oil and gas unit, said strong R&D would help customers in the sector “find new efficiencies to work through tough market conditions” and help the industry in the long run.
Business investment remains a troubling weak spot for the U.S. economy, and it has contributed to a slowdown in overall growth since last year.
A broad measure—fixed nonresidential investment—declined outright in late 2015 and early 2016.
It would have declined this spring for a third straight quarter had rising outlays on intellectual-property products, including software and R&D, not offset declines in spending on equipment and structures.
Looking through short-run volatility, business investment in R&D and software was more stable through the 2007-09 recession and subsequent recovery compared with company spending in other categories, and it has picked up in the past few years as the federal government has scaled back its own R&D expenditures.
Since late 2007, fixed private investment in intellectual property has risen 29%, including a 23% increase in R&D spending, versus 15% growth for equipment purchases and a 19% decline in spending on structures.
To read the full story, click here.
For example, the oil-price slump that began in mid-2014 has driven a pullback in spending on new wells and drilling equipment.
Still, General Electric Co. earlier this month inaugurated an Oil & Gas Technology Center in Oklahoma City. Lorenzo Simonelli, head of the company’s oil and gas unit, said strong R&D would help customers in the sector “find new efficiencies to work through tough market conditions” and help the industry in the long run.
Business investment remains a troubling weak spot for the U.S. economy, and it has contributed to a slowdown in overall growth since last year.
A broad measure—fixed nonresidential investment—declined outright in late 2015 and early 2016.
It would have declined this spring for a third straight quarter had rising outlays on intellectual-property products, including software and R&D, not offset declines in spending on equipment and structures.
Looking through short-run volatility, business investment in R&D and software was more stable through the 2007-09 recession and subsequent recovery compared with company spending in other categories, and it has picked up in the past few years as the federal government has scaled back its own R&D expenditures.
Since late 2007, fixed private investment in intellectual property has risen 29%, including a 23% increase in R&D spending, versus 15% growth for equipment purchases and a 19% decline in spending on structures.
To read the full story, click here.
