One interesting aspect of the current recovery is the relatively modest increase in investment in non-residential fixed assets.
Figure 1: Share of investment in non-IP products in nominal GDP (blue) and share of investment in IP products (brown), SAAR. Peak-to-trough dates as determined by the NBER are in grey. Source: BEA, author’s calculations.
Note that the drop in non-residential investment was fairly small and the rebound relatively small. Perhaps even more interesting is that the share of investment in IP products has increased over time. And in terms of nominal GDP growth, the importance of investment in IP products has risen to Covid-19. In Figure 2, I show qoq changes, but the share of impact on GDP shows the same picture.
Figure 2: Quarterly Changes in Non-IP Fixed Investment (Blue) and Investment in Intellectual Property Products (Yellow), SAAR. Peak-to-trough dates as determined by the NBER are in grey. Source: BEA, author’s calculations.
Note that in these figures I have used the cumulative series of BEAs for intellectual property products (components are software, R&D, entertainment, and literary originals). Detailed information on the heterogeneity of investments in IP products can be found in Fixler and de Francisco (2022).
Two consequences can be drawn from this observation. The first concerns what the final GDP figures for the first and second quarters are likely to end up looking like. Investment in IP has in some cases been significantly revised upwards.
Figure 3: Investment in intellectual property products for June 2019 (blue), June 2020 (yellow-brown), June 2021 (green), and June 2022 (bold red), all in billions of dollars, SAAR. Peak-to-trough dates as determined by the NBER are in grey. Source: BEA, author’s calculations.
Not only did the WHO series move up with the revision of the benchmark published in July 2021 (by about a quarter of one percentage point of GDP), but, importantly for GDP growth rates, changes Investments in IP products are usually revised upwards. Therefore, an additional argument in favor of my belief that GDP growth in 2022 is likely to be revised upwards as the GDP figures are revised base figures.
The second observation concerns the impact of monetary tightening. The view that investments in intangible capital are less sensitive to changes in interest rates (for example, Kruse and Eberle, 2019) implies that monetary policy may need to be tighter than otherwise in order to achieve a given target reduction in aggregate demand.