Businesses’ investment in new equipment helped boost GDP

How much better can the good economic news get? Real gross domestic product for the second quarter, which we already thought was strong from the preliminary report, was even stronger after the first revision, according to new data.

GDP grew at a 3% annual rate from April to June, more than double the 1.4% rate in the first three months of the year. Bureau of Economic Analysis, in accounting for the improvement in GDP, cited increases in consumer spending, inventories and something called nonresidential fixed investment — basically, businesses’ spending on new plants and equipment.   

“Businesses are profitable, they’re making lots of money, demand is pretty good,” said Mark Zandi at Moody’s Analytics.

One thing driving strong business investment is federal spending, Zandi added.

“The Inflation Reduction Act, CHIPS Act, Bipartisan Infrastructure Law, all of that requires private-sector business investment,” Zandi said.

Bill Adams at Comerica Bank said there was a big jump in transportation equipment spending.

“Nondefense aircraft, which are notoriously lumpy, and they can cause a lot of fluctuations,” Adams said.

But investment in trucks to haul raw materials and consumer goods was also strong. So was spending on computer equipment to help companies adopt automation and artificial intelligence.

Shruti Patel at US Bank said 60% of small businesses are already using chatbots, personal assistants and the like.

“They’re hoping that translates back into upskilling and training of the employees to help combat labor shortages,” Patel said.

In Chicago, Jim Piper’s 40-employee metal fabrication company makes air dampers for pollution control in factories.

“We have made this past year, despite the higher interest rates, investments in new capital equipment,” Piper said. “Nearly $2 million includes new machines for cutting, also heavier-duty machines for forming steel.”

Piper said that’ll allow him to improve quality and productivity.   

“Investments into this type of technology will actually increase demand for the product, thereby increasing demand for additional employees,” Piper said.

That would help his workers and his bottom line.