Janet Yellen Secretary of the Treasury | Twitter Website
WASHINGTON — The U.S. Department of the Treasury’s Office of Economic Policy released an analysis today indicating that American businesses are not only achieving high earnings but are also investing those earnings productively. The Biden Administration has prioritized creating favorable conditions for business investment as a key component of the post-COVID economic agenda. Legislative measures such as the CHIPS & Science Act and the Inflation Reduction Act explicitly encourage private investment, while other efforts by the Administration aim to increase competition and reduce barriers to entry for new firms. Business investment is seen as essential for strengthening long-term productivity and creating higher-quality jobs.
This analysis precedes Secretary Yellen’s scheduled remarks to the Economic Club of New York on Thursday, June 14, where she will discuss President Biden’s Investing in America Agenda and how the Administration is partnering with the private sector to spur growth nationwide.
Key findings from the analysis include:
American business investment is surpassing expectations in the post-pandemic expansion, with businesses having invested $430 billion more since 2019 than if investment had followed historical patterns. Despite high interest rates that raise borrowing costs for firms, real American business investment has outperformed three critical benchmarks: typical behavior in economic expansions, post-COVID consensus forecasts, and conventional accelerator models used by economists to forecast investment.
Factory building (construction for manufacturing) has contributed almost one-third of business investment growth since the pandemic. Historically, factory building did not contribute to business investment growth from 1973 to 2021; however, it has accounted for a third of overall business investment growth since then. Intellectual property investment has also increased, while conventional equipment investment has slowed. With factory building concentrated in sectors such as computer, electrical, and electronics manufacturing, this trend appears related to initiatives like the CHIPS Act and Inflation Reduction Act.
The outlook for future business investment growth remains positive: firms are experiencing persistently high returns on their capital investments, and new businesses are being founded at historic rates. These consistently high returns provide businesses with confidence that their investments will be profitable in the future and counter concerns that public investments might crowd out private capital. This confidence persists even as efforts continue to curb non-competitive monopolistic practices that may have previously inflated these returns. Applications for new businesses have surged above pre-pandemic levels, reflecting strong confidence among business founders regarding future investments.
The full analysis can be accessed here.
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