US biz investment beating expectations in post-COVID expansion: Govt

US business investment is outperforming expectations in the post-pandemic expansion; businesses have invested $430 billion more since 2019 than if investment had followed historical patterns, the analysis found.

Despite high interest rates that increase firms’ borrowing costs, real American business investment has outperformed three key benchmarks: typical behaviour in economic expansions, post-COVID consensus forecasts and the conventional accelerator models that economists use to forecast investment.

The Biden Administration has made creating favourable conditions for business investment a critical competent of the post-COVID economic agenda. The CHIPS & Science Act and Inflation Reduction Act explicitly encourage private investment, while other Administration efforts increase competition and reduce barriers to entry for new firms, the department said in a release.

Factory building (construction for manufacturing) has contributed almost one third of business investment growth since the pandemic. Factory building did not contribute to business investment growth on average from 1973 to 2021.

Intellectual property investment has also grown, while conventional equipment investment has slowed.

The outlook for future business investment growth is encouraging: firms are observing persistently high returns to their capital, and founders are starting new businesses at historic rates.

Today’s persistently high returns to capital give businesses confidence that their investments will pay off in the future and negate the idea that public investments are crowding out private capital.

Business founders are showing confidence in the investment outlook, as applications for new businesses surge above pre-pandemic rates, the release added citing the analysis.

Fibre2Fashion News Desk (DS)