Economic Growth Due in Part to New Equipment Sales

Despite concerns about weak business investment, Bloomberg.com reports that US businesses have been pumping money into new equipment and software. Everything from yellow iron to video cameras and manufacturing equipment.

Bloomberg.com reports: “In the third quarter of 2011, private-sector investment in equipment and software accounted for more than 60 percent of total growth in gross domestic product. Since the official end of the recession in the spring of 2009, the share of GDP devoted to such investment has risen more rapidly than in any recovery in the post-World War II era.”

However, the boom seems to only be taking place in equipment, which has a relatively short shelf life. Bloomberg.com adds “Some studies suggest equipment and software investment is particularly beneficial for economic growth. In the early 1990s, for example, economists Brad DeLong of the University of California, Berkeley, and Larry Summers of Harvard examined the strong cross-country connections between this type of investment and economic growth. They concluded that “a high rate of equipment investment is a key cause of rapid growth.” (Other economists have challenged that strong conclusion, but the debate is about magnitudes; no one disagrees that investment helps boost economic growth.”)