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Companies are spending more on intellectual property. Why?

Stephanie Hughes Nov 27, 2024
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More companies are investing in intellectual properties like AI. Jason Redmond/AFP via Getty Images

Companies are spending more on intellectual property. Why?

Stephanie Hughes Nov 27, 2024
Heard on:
More companies are investing in intellectual properties like AI. Jason Redmond/AFP via Getty Images
HTML EMBED:
COPY

We got a cornucopia of economic data today. The PCE price index, AKA the Fed’s preferred measure of inflation, increased 0.2% in October and is up 2.3% from a year ago. That means inflation remains above the Fed’s 2% target.

From the Census Bureau, we learned that new orders for durable goods, i.e. products that are meant to last at least three years, went up just a touch in October, about 0.2%. Meanwhile, the BEA gave us revised GDP data. The headline number remains the same — the economy grew at an annual rate of 2.8% in the third quarter.

But the guts of what goes into that number shifted a bit. One component that was revised upwards? What the BEA calls “nonresidential fixed investment.” In other words, businesses are spending some money with an eye toward making more money.

The electrical contractor Kelso Burnett is based in Chicago, and in the last five years, the company’s gotten more business installing solar panels in Illinois. 

“As you can imagine, out in the middle of the corn fields, you know, they’re buying up some property and they’re building the solar farms,” said William Martin Jr., a branch manager for the company.

To build those solar farms, his company has to install metal pilings that support the panels.

Kelso Burnett had been renting equipment to do the work. But earlier this year, it decided to spend half a million dollars on its own pile drivers.

“We see a big market in the solar field area,” Martin said. “So, dove right in and bought two machines.”

His company also just bought some AI software to see if it speeds up the process of estimating the number of electrical outlets a building might need that could allow them to bid on more projects. 

“It takes a little bit of time for everybody to kind of understand this new program, if we like it, if it’s going to work for us,” Martin said.

The software purchase is considered an investment in intellectual property, which is a growing part of GDP. In the third quarter, businesses spent more than $1.5 trillion on IP.

Economics professor Ethan Struby at Carleton College said a lot of companies are experimenting with AI these days.

“The only way to know how it fits into your process is to try it and to see if it actually is successful,” Struby said.

Companies also spent more on transportation equipment in October. New orders were up 0.5% from the month before, according to the durable goods report. 

Ryan Young, a senior economist with the Competitive Enterprise Institute, said that’s a sign that automakers, for example, are stocking up.

“They’re buying now, while it’s cheap, anticipating that prices might go up later if there are new tariffs or other policies,” Young said.

Remember, that durable goods report is from October, so the companies buying didn’t know yet what would happen with the election.

Young said they were preparing, regardless. He said now that they know the outcome, companies that have been eyeing a pile driver, say, for a while, might be more likely to go ahead and buy it.

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