6 days ago
Investment Made By U.S. Small Businesses
Education and training are important investments in workers (human capital). However, workers must be paired with physical capital (from shovels to AI computers) to produce the goods and services that consumers want. Small business owners act as 'intermediaries,' bringing capital and labor together in a working partnership. NFIB's June Small Business Economic Trends report found that 50% of small business owners reported making a capital expenditure in the past six months. These included vehicles, equipment, fixtures and furniture, buildings or land, along with improvements to existing buildings or land. Historically, June's level is low, close to the 50-year low of 45% reached after the 2008 recession (Chart 1). The peak of 72% occurred in December 1998, as spending surged in anticipation of the 'Y2K' event, which turned out to be a 'non-event."
Actual Capital Outlays. NFIB Small Business Economic Trends.
Chart 2 shows the types of expenditures made in June. Thirty-two percent reported purchasing vehicles, ranging from a low of 13% among wholesale businesses to a high of 45% among finance and real estate businesses. Nine percent purchased new equipment, 3% upgraded structures, and 13% acquired new facilities (purchased or leased). Equipment purchases were concentrated in the service and retail industries.
Types of Investment by Industry (Bought or Leased). NIFB Small Business Economic Trends.
The most frequent spenders were transportation and communication businesses (Chart 3). They also had the highest spending, with 29% reporting outlays of $100,000 or more. Trucks and construction vehicles are expensive! Businesses in the retail, services, and professional services industries were the least active buyers and tended to spend less money when they invested. In general, businesses that 'made stuff' were much more likely to invest and spend more money than service businesses (labor-intensive).
Capital Expenditure Amount by Industry. NFIB Small Business Economic Trends.
A critical component of gross private domestic investment is the 'change in business inventories.' In simple terms, if General Motors makes a car in the U.S. and sells it, GDP is created as consumption rises. If the car is unsold at the end of the accounting period (year, quarter, or month), then it becomes an inventory investment. When the car is sold in another period, it is a subtraction from GDP because it was already accounted for in GDP through increased inventory investment. Basically, it is an accounting convention, unrelated to real investment spending, but a contributor to volatility in GDP measurement. It is small compared to outlays on plant and equipment and housing.
Actual Change in Inventory. NFIB Small Business Economic Trends.
Progress is the product of a partnership between capital and labor, the essence of all businesses, big and small. Owners provide the structure and equipment and hire workers to complete the partnership. Good management and qualified workers enhance productivity, the fundamental driver of profits and wages. It's a never-ending process, as the environment is constantly changing. Main Street is where it all starts. Microsoft (et al) didn't just suddenly appear; they were all small businesses on Main Street.
