Useful Stats: R&D in nonmanufacturing industries closing gap with manufacturing industries, SSTI analysis of NSF data finds

The 2021 BERD dataset reveals the highest level of business R&D spending on record. Since 2015, R&D expenditures have increased by 69% from $356 to $602 billion, representing an average annual growth of $41 billion or 9%. But what industries are contributing the most to this trend? The growth of business R&D in nonmanufacturing industries has far outpaced that of manufacturing industries since 2016, with an average growth of 15% per annum, compared to 6% for manufacturing industries. Nonmanufacturing R&D expenditures have been driven by massive increases in the information sector, among other industries, while chemicals—specifically pharmaceuticals and medicines—have led manufacturing. While nonmanufacturing industries have higher growth rates in their R&D expenditures, they still lag behind manufacturing industries in actual expenditures, but the gap is rapidly closing.

The Business Enterprise Research and Development (BERD) survey is conducted annually by the National Science Foundation (NSF) and the U.S. Census Bureau to collect data on R&D expenditures by businesses in the United States. The survey covers various industries, broken down by manufacturing (NAICS 31-33) and nonmanufacturing (NAICS 21-23, 42-81).

R&D expenditures are an essential measure of innovation and economic growth. Businesses invest in R&D to develop new products and services, improve existing ones, and help reduce costs. R&D also allows businesses to stay competitive in the global economy. However, taking annual changes in business R&D expenditures with a grain of salt is important, as they may greatly fluctuate with large grants or one-time investments.

Manufacturing and nonmanufacturing BERD comparison by type of cost

Figure 1: High-level industry breakdown by type of cost

Broken down by type of cost, immediate differences can be seen between manufacturing and nonmanufacturing industries. Manufacturing industries have much higher materials and supplies, as well as depreciation-related, costs. Nonmanufacturing industries, however, have much larger stock-based compensation costs. For manufacturing, a higher cost of materials and supplies may mean a reduction in the amount of R&D performed each year even if total expenditures remain the same. For nonmanufacturing, higher stock-based compensation may mean a dilution, devaluation in outstanding company shares.

Figure 1 shows BERD expenditures by type of cost for all measured industries and the umbrella industries of manufacturing and nonmanufacturing, from 2015-2021. Manufacturing industries account for more of U.S. business R&D spending but are growing slower than their nonmanufacturing counterparts. Salaries, wages, and fringe benefits are the most significant cost type for both, followed by “other” for manufacturing and stock-based compensation for nonmanufacturing.

Industry breakdown

While the aggregate trends in R&D spending are important, looking at more specific industry data is also useful. The following graphic, Figure 2, shows the breakdown of the same data but with a deeper dive; depending on the industry selected, there may be up to three sub-industries beyond manufacturing or nonmanufacturing.

To start, click anywhere on the “All Industry” circle. Clicking the arrow in the top right of the tool will return the user to the previous layer.

The cost type can be toggled using the dropdown beneath the title of the data tool, where users can explore specific breakdowns for each industry.

Figure 2: BERD industry breakdown data tool

Of the various manufacturing industries with complete temporal data, only furniture & related products and transportation equipment experienced any decrease from 2015-2021.

Petroleum and coal products experienced the highest percent growth in R&D expenditures at plus 347% from 2015 to 2021. Wood products followed at plus 128%.

However, the industries driving the most significant increases in R&D expenditures are chemicals and computer & electronic products, having increased by 70 and 40% each since 2015. These increases represent growths of $45 and $29 billion.

Nonmanufacturing industries grew at much higher rates over the same period. The Information sector[1] was the largest contributor to this growth, increasing by $82 billion, or 126%.

The next largest contributors were professional, scientific, & technical services with a 72%, $28 billion, increase and real estate and rental and leasing at plus 14,900% or $45 billion.

The vast majority of the growth in real estate and rental and leasing occurred between 2020 and 2021, with a 1,287% increase. The industry has, however, grown by at least 34% per annum, averaging 286%.

The data tool can be used for a more in-depth look at the sectors and specific subsectors.

Implications of continued increases in BERD

Business R&D spending in the United States reached a record high of $602 billion in 2021, representing an average annual growth of 9% since 2015.

Manufacturing industries, such as chemicals, and nonmanufacturing industries, such as professional, scientific, & technical services, have been the primary drivers of this growth, with average annual growth rates of 9% and 10%, respectively.

This trend will likely continue in the coming years as businesses invest in new technologies to stay competitive in the global economy. For example, the information sector is seeing heavy investments in data processing, hosting, and related services (+380% since 2015); the chemicals industry is seeing massive investments in pharmaceuticals and medicines (+71% since 2015).

Increased business R&D spending is a positive sign for the U.S. economy, indicating that businesses are committed to innovation. However, it is important to note that R&D expenditures can fluctuate significantly from year to year, depending on large grants or one-time investments, and the efficacy of R&D cannot be determined solely by its size.

The data used in this article can be found here.