Analysis: Intangible investments cast U.S. economy in brighter light

Sun Jul 28, 2013 7:07am EDT
 
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By Jason Lange

WASHINGTON (Reuters) - As many a former factory worker can attest, U.S. companies have invested so heavily in technology that some plants now practically run themselves.

So it is rather odd that official data suggests American businesses for decades have been growing less aggressive at investing in their operations.

This apparent contradiction helps illustrate a rethinking under way on how to measure economic output, a discussion that is leading to an overhaul of government data this week that will show the U.S. economy is a bit larger than previously thought.

The idea is that while companies might be spending less of their income on tangible things like buildings and equipment, they appear to be spending more than ever on ideas, such as the engineering research behind an automated factory.

Private spending on research and development has roughly doubled as a share of investment in the last 50 years. The thing is, it doesn't actually count as investment, so America's output of cancer drugs adds to economic growth but the research to develop them does not.

This will change on Wednesday when the Commerce Department releases decades of revised data that will include R&D as a category of investment. Under the new framework, R&D added about $300 billion to GDP in 2010.

"It's gotten to be an even bigger part of the economy, so it's incumbent on us to incorporate it," Steven Landefeld, director of the department's Bureau of Economic Analysis, said in an interview.

Money spent creating enduring artistic products like movies and books will also now count as investment. Adding up the full revisions will add nearly 3 percent to the size of America's economy, the BEA says.   Continued...