WASHINGTON — Today, the U.S. Department of the Treasury’s Office Economic Policy released an analysis that shows American businesses are doing well not simply because their earnings are high, but because they are investing those earnings productively. The Biden Administration has made creating favorable 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. Business investment strengthens our economy’s long-run productivity while creating space for higher-quality jobs.
This analysis comes before Secretary Yellen’s remarks to the Economic Club of New York on Thursday, June 14, where she’ll discuss President Biden’s Investing in America Agenda and the ways the Administration is partnering with the private sector to spur growth across the country.
Highlights from the analysis:
- American 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. Despite high interest rates that increase firms’ borrowing costs, real American business investment has outperformed three key benchmarks: typical behavior in economic expansions, post-COVID consensus forecasts, and the conventional accelerator models that economists use to forecast investment.
- 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, but since then it has contributed a third of overall business investment growth. Intellectual property investment has also grown, while conventional equipment investment has slowed. With factory building concentrated in the computer, electrical, and electronic sector, the trend appears to be related to the CHIPS Act and the Inflation Reduction Act.
- 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. These high returns are persisting even as the Administration works to rein in non-competitive monopolistic practices that may have boosted these returns in the past. Business founders are showing confidence in the investment outlook, as applications for new businesses surge above pre-pandemic rates.
Read the full analysis here.
###
Use featured image Off Official news published at https://home.treasury.gov/news/press-releases/jy2402