U.S. business investment fell off in the second quarter, dragging down gross domestic product and ending a seven-quarter run of historic contributions to growth.
Nonresidential fixed investment, which includes expenditures for such things as building and renovation, fell 0.1% on an annualized basis for all industries except mining and drilling. Consumer spending, though tentative due to higher prices, still contributed to the GDP, the U.S.’s broadest measure of economic output.
Companies still continued to hire, despite the fall-off in business investment. Job growth accelerated in July, reaching pre-pandemic job market conditions. Also, global supply chain congestion improved, reaching its lowest level since January 2021, according to the New York Federal Reserve.
Some analysts say the slowing of business spending is likely temporary, as companies wait and see what the Fed continues to do with interest rates.
The pullback in business spending "is more of a pause than a sign of structural weakness," Andrew Hunt, head of the Center for Real Estate at Marquette University in Milwaukee, told Reuters. He cited a surge in rents and construction costs earlier this year as cause for businesses to postpone adding new physical space or renovating existing square footage.
"People said, 'Let’s see if the Fed does what they said they were going to do, and see how things stabilize as we move into the fall,'" said Hunt.
The Fed has lifted interest rates at each of its meetings beginning in March. It’s expected another hike may come in September, given the large payrolls gains for July, according to Reuters.
CBRE Group Inc., which tracks industrial property trends, also sees the decline in business spending as momentary, noting in a recent report that one-third of a record-breaking 626.6 million square feet of new industrial construction was already leased.
"Last year was the biggest industrial leasing year ever—over 1 billion feet in the U.S.," John Morris, President of the Logistics Business for the Americas at CBRE, told Reuters.
Also, the slowdown appears concentrated in smaller companies, Morris said. The high-profile e-commerce and retail firms that lease giant warehouses didn’t appear to be part of the equation. Leasing of warehouses of more than 700,000 square feet is up 25% in the first half of this year, compared to 2021, said Morris, while leasing of warehouses of 50,000 square feet or fewer is down 21%.
