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Surge in R&D spending by US companies

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US companies are again putting money where their competitive advantage lies: in uncovering the products that will one day change how you work and play.

[WASHINGTON] US companies are again putting money where their competitive advantage lies: in uncovering the products that will one day change how you work and play.

Corporate spending on research and development rose 6.7 per cent in 2014, almost twice the previous year's gain and the biggest advance since 1996, according to Commerce Department data. The pickup was capped by a 14 per cent fourth-quarter surge that signals additional increases are on the way.

The spending could extend the momentum of an era of growth- inducing innovation that produced smartphones and tablet computers, 3-D printers, cloud software that delivers services via the Internet and hydraulic fracturing that is making the US more energy self-sufficient. Combined with what's still on the drawing board, such initiatives raise the odds productivity will rebound, boosting the standard of living.

"CEOs wouldn't be paying all these researchers - which is where the R&D budget primarily flows to - unless they thought that there was something really interesting going on," Jason Cummins, chief US economist and head of research in Washington for hedge fund Brevan Howard Inc. "R&D surges like this sow the portents of better productivity growth three, five, 10 years later."

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The United States could benefit from such a boost. Employee output per hour has climbed 0.7 per cent a year on average since 2011, compared with gains of 2.5 per cent from 1990 through 2005, a period encompassing what some economists have called a "productivity miracle." Productivity measures the overall efficiency of the economy and governs how fast it can expand, how much companies can earn and pay their workers, and how much the government can increase its budget.

More research may help rekindle business investment in equipment that has been bogged down since late last year. Orders for non-military capital goods excluding aircraft, a proxy for future spending on new gear, slumped 1.4 per cent in February, Commerce Department data showed Wednesday. It marked the sixth straight decrease, the longest stretch since mid-2012.

The pickup in R&D spending last year was paced by well- known names, as 18 companies in the Standard & Poor's 500 Index boosted such investment by 25 per cent or more from 2013, according to data compiled by Bloomberg. The list includes drug- makers such as Pfizer, travel-booking firms Priceline Group and TripAdvisor, and Apple and Google.

Pharmaceutical companies were some of the biggest spenders on R&D in 2012, running up a US$48.1 billion tab, according to the latest data from a survey by the National Science Foundation. The information industry - including publishing, telecommunications and data processing - shelled out $46.8 billion, while transportation-equipment makers spent about $42.3 billion.

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