It's been a hard slog for the U.S. economy since the financial crisis of 2008. Yet the type of investment most closely correlated with productivity growth has been booming.
That's right: Despite widespread concern about weak business investment, companies have been pouring money into equipment and software -- everything from tools and tractors to word-processing programs.
In the third quarter of 2011, private-sector investment in equipment and software accounted for more than 60 percent of total growth in gross domestic product. Since the official end of the recession in the spring of 2009, the share of GDP devoted to such investment has risen more rapidly than in any recovery in the post-World War II era.
The boom is occurring only in equipment and software, which have a relatively short shelf life. Investment in nonresidential structures, which have a longer lifespan, plummeted in the downturn and has not come back as strongly. That's why, even with the boom in equipment and software, total private, fixed nonresidential investment has remained below its pre-recession peak.
Within equipment and software investment, however, all categories have risen rapidly. Transportation equipment, in particular, has more than doubled in inflation-adjusted terms from the trough of the recession in the second quarter of 2009 to the third quarter of 2011 (the most recent data available). Information-processing equipment and software, along with industrial equipment, are up more than 20 percent. Overall, equipment and software investment has risen more than 30 percent, after adjusting for inflation.