The shifting composition of US business investment is accelerating once again. Out of the three categories of non-residential fixed investment (intangible property products, equipment, and structures), only intangible property products (IPP) is growing on a year-over-year basis. IPP has increased by nearly 6% over the past year while equipment and structures have declined by almost 4%. This environment of diverging growth rates has been going on since 2014. At that time, tangible business investment was growing over 10% on YoY% basis. Since then companies have slammed on the breaks on tangible investment, however, they have continued to invest in intangible investments at a healthy clip. All of this has led to intangible investment now accounting for one third of all non-residential fixed investment (or business investment) in the US. A share of total business investment that is is approaching an all-time high. As a share of GDP, IPP is now at 4.1% while equipment has fallen to 5.7% and structures is at just 2.6%.
Since 1947, investment in IPP has grown at a 9% compound annual growth rate (CAGR) while investment in structures has grown at a 6.1% CAGR and investment in equipment has grown at a 6.4% CAGR. If we extrapolate these growth rates out into the future intangible investment will be the largest component of US business investment by 2030 and will account for over 41% of total business investment in the US. And remember, according to archaic account rules that have been in place since 1974, all internally generated intangible assets that companies create are treated as an expense not an investment. Does that make sense to you given how important intangible investments are from a national wealth investment standpoint?