Jason Furman and the CEA on the investment drought

Here is a pdf of his remarks, with useful graphs, excerpt:

So in recent quarters, the investment story has been about oil. But drilling cannot explain the broader trends over the past five years. Since 2010, most of the step down in investment growth was attributable to reduced growth in equipment investment, as shown in Figure 6. At the same time, intellectual property products investment has been accelerating and over the last four quarters it grew 7.3 percent, the fastest pace since 2005. In fact, stronger growth in intellectual property products investment has partially offset the slower growth in equipment investment over the past two years. Intellectual property products consists of about 45 percent research and development (R&D) investment, 45 percent software investment, and 10 percent artistic originals.

Yet if you look to Figure 8 on p.7, you can see that the overall trajectory for fixed business investment is not entirely positive, even worse if Figure 11 on p.10 (alas I cannot get them to reproduce in this post).  The bottom line is this:

…today’s gross investment is 2.3 percentage points lower than its historical average…Investment net of depreciation as a share of GDP was already lower than its historical average going into the recession and today remains well below its historical average…

You will find many (appropriate) caveats in the study itself, most of all that investment in software may be different, although this can cut either way.  Software has been improving rapidly, but it is also not very durable as business investments go.

Addendum: Paul Krugman comments.


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