Indiana Trust Wealth Management
Investment Advisory Services

by Clayton T. Bill, CFA
Vice President, Director of Investment Advisory Services

  • The US equity market, represented by the S&P 500 index, gained 2.5% for the week ending September 1.
  • Prime-age employment in high-value, high-wage, capital formation sectors is at highs not seen since the late 1990s, a period of strong economic growth.

Investment is critical for economic growth and for productivity. In the economic sense of the term, it represents the creation of wealth. Building a factory or a house represents physical investment, but it can take intangible forms, such as intellectual property.

In the US, investment as a share of economic output has been declining for many years. That trend is on course for a reversal, one of the less-predictable outcomes of the post-COVID economic recovery. Investment in the US economy is hoped to result in productive capital formation, unlike the recent experience in certain other economies, such as China, where the bill is coming due for many years of over-investment in unproductive assets.

Evidence for the shift in the US economy toward high-value capital formation can be found in the labor market. The current share of prime-age jobs as a percent of population in capital formation sectors such as durable goods manufacturing, construction, and intellectual property has not been so high since the late 1990s, a period of strong economic growth.

Economist Skanda Armanath notes it is the allocation towards higher-quality, higher-wage, and higher-productivity jobs that matters for the US economy. The increasing allocation to higher-wage jobs is one reason for the sustained growth in household demand: real consumer spending through July is up 4.5% at an annual rate.

Of course, household spending returns to firms as revenue. Investment is a massive source of corporate profits. As noted earlier, investment has been a declining share of the economy for some time, while other profit drivers have picked up the slack. It would be encouraging for corporate profits should investment continue to ramp back up.


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