Capital investment continues to decline, but at a lower rate

The specific gross domestic product (GDP) component that captures the trend in capital spending by U.S. companies — nonresidential business investment — declined for the seventh consecutive quarter during second quarter of this year. The good news is that the second-quarter decline in capital investment — 1.6% at an annualized rate — was of the smallest magnitude recorded since the fall of 2000. Even more encouraging was the fact that spending for the purchase or upgrade of equipment and software actually increased a bit (2.9% annualized) during the second quarter. This was the first such gain recorded in this GDP category since the middle of 2000.

But spending on nonresidential structures plunged for the fifth time in the past six quarters during the quarter. After contracting at just a slight 1.7% in 2001, business spending on buildings has plunged at an average rate of 19.4% during the past three quarters.