Companies spent $226 billion in current-year dollars on research and development (R&D) performed in the United States during 2005 compared with $208 billion in 2004 (table 1), according to estimates from the Survey of Industrial Research and Development. In inflation-adjusted (2000) dollars, 2005 R&D expenditures increased $10.3 billion or 5.4% from 2004 levels. Funding from both the company's own and other nonfederal sources (hereafter, company or company and other funding) and from federal sources for R&D were higher in 2005 than in 2004. Company funding during 2005 amounted to $204 billion in current-year dollars compared with $188 billion during 2004, and federal funding amounted to $22 billion during 2005 compared with $20 billion during 2004. After adjusting for inflation, company-funded R&D increased 5.4%, and federally funded R&D increased 4.9%.
Table 1 Source Data: Excel file
R&D Performance by Industrial Sector
In 2005, companies in manufacturing industries performed $158 billion of R&D, which accounted for 70% of all industrial R&D performed in the United States; companies in nonmanufacturing industries performed $68 billion of R&D (table 2). Manufacturers performed $143 billion of company-funded R&D and $16 billion of federally funded industrial R&D; companies in the nonmanufacturing industries performed $62 billion and $6 billion, respectively. Other company and federally funded R&D costs by detailed industry are given in table 2 (see Data Notes for information on industry classification).
Table 2 Source Data: Excel file
Sales and Employment of R&D Performers
Domestic net sales (see table 1 for definition) of companies that performed R&D in the United States were $5.6 trillion in 2004 and $6.1 trillion in 2005. The R&D-to-sales ratio was 3.7% in 2005, as it was in 2004. Domestic employment during 2005 was 16.0 million (table 3), compared with 14.8 million reported in 2004 (National Science Foundation 2007a). The number of full-time equivalent scientists and engineers who performed industrial R&D was 1.1 million in 2004 and 2005. Other sales and employment estimates by detailed industry are given in table 3.
Table 3 Source Data: Excel file
R&D Funds and Company Size
Small-to-medium sized companies, those with fewer than 25,000 employees, performed 62% of industrial R&D in the United States during 2005 (table 4). More specifically, companies with at least 5 but fewer than 500 employees reported 9% of sales of R&D-performing firms, while performing 18% of all industrial R&D and employing 24% of the scientists and engineers who worked on R&D. Large firms with 25,000 or more employees reported 42% of sales, performed 38% of all R&D, and employed 29% of R&D scientists and engineers. Other R&D costs and sales and employment estimates by size of company are given in table 4.
Table 4 Source Data: Excel file
R&D Performance by State
During 2005, the top 10 states accounted for two-thirds of the industrial R&D performed in the United States. Companies in California, Michigan, Massachusetts, New Jersey, Texas, Washington, Illinois, New York, Pennsylvania, and Connecticut (listed by decreasing level) reported aggregate R&D expenditures of $152 billion (table 5). California alone accounted for 22% of the U.S. industrial R&D total.
Table 5 Source Data: Excel file
The types of companies that carry out R&D vary considerably among the top 10 states, reflecting regional specialization or clusters of industrial activity. For example, the motor vehicles industry accounted for 74% of Michigan's industrial R&D in 2005, whereas it accounted for only 5% of the nation's total industrial R&D (National Science Foundation 2007b).
The computer and electronic products manufacturing industries accounted for 19% of the nation's total industrial R&D, but they accounted for a larger share of the industrial R&D in Massachusetts (41%), Texas (38%), Illinois (38%), and California (33%) in 2005. These states have clearly defined regional centers of high-technology research and manufacturing: Route 128 and Cambridge in Massachusetts; the Silicon Hills of Austin, Texas; Champaign County in Illinois; and Silicon Valley in California. Over 70% of R&D performed in the United States by computer and electronic products companies in 2005 was located in these four states, representing 14% of all industrial R&D nationwide.
The R&D of chemicals manufacturing companies is particularly prominent in New Jersey, Pennsylvania, and Connecticut, all of which host robust pharmaceutical and chemical industries. Together these three states represented over 40% of the nation's R&D in this sector in 2005.
The R&D services sector is even more concentrated geographically, with California and Massachusetts accounting for over 40% of R&D in this sector. This sector consists largely of biotechnology companies, contract research organizations, and early-stage technology firms. These companies maintain strong ties to the academic sector and often are located near large research universities.
The R&D performance by small companies (defined as having from 5 to 499 employees) is also concentrated geographically. Nationally, small companies performed 18% of the nation's total industrial R&D in 2005, but in California, Massachusetts, and New York small companies performed between 19% and 22% of each state's industrial R&D. About 39% of the industrial R&D performed in the United States by small companies was performed in these three states.
Estimates in this InfoBrief were derived from the annual Survey of Industrial Research and Development. The survey is cosponsored by the National Science Foundation and the U.S. Census Bureau, and Census is the collection and tabulation agent for the survey. The survey is a nationally representative sample of all for-profit companies, publicly or privately held and with five or more employees that performed R&D within the 50 United States and the District of Columbia. Approximately 32,000 companies are surveyed each year and the overall response rate is approximately 80%. The primary focus of the survey is U.S. industry as a performer of research and development rather than as a source of funds. Beginning in 1989, the amount of federally funded R&D reported by performers began to diverge from the amount reported by federal agencies. For 2005, federal agencies reported obligations of $109.2 billion and outlays of $100.3 billion in total R&D to all R&D performers and obligations of $43.5 billion to industrial R&D performers. These totals compare with $94.6 billion in federal funding reported by all performers of R&D and with $22.0 billion reported by industrial R&D performers. Although NSF has not found a definitive explanation for this divergence, the National Research Council notes that comparing federal outlays (as opposed to obligations) for R&D to performer expenditures results in a smaller discrepancy (National Research Council 2005).
Beginning in the late 1990s, increasingly large amounts of R&D were attributed to the wholesale trade industries, resulting from the payroll-based methodology used to assign industry classifications and the change from the standard industrial classification (SIC) system to the North American Industrial Classification System (NAICS) in 1999. Such classification artifacts were of particular concern for companies traditionally thought of as pharmaceutical or computer-manufacturing firms. As these firms increasingly marketed their own products and more of their payroll involved employees engaged in selling and distribution activities, the potential for the companies to be classified among the wholesale trade industries increased. To improve the relevance and usefulness of the industrial R&D statistics, NSF evaluated ways to ameliorate the negative effects of the industry classification methodology and classification system change. Beginning in 2004, in addition to firms originally assigned NAICS codes among the wholesale trade (NAICS 42) industries, firms in the information (NAICS 51); professional, scientific, and technical services (NAICS 54); and management of companies and enterprises (NAICS 55) industries using the payroll-based methodology were manually reviewed by NSF and Census. These firms were reclassified based on primary R&D activity, which in most cases corresponded to their primary products or service activities. The result was that most of the R&D previously attributed to NAICS 42 and 55 industries was redistributed. For detailed information, see National Science Foundation 2007c.
National Research Council. 2005. Measuring Research and Development Expenditures in the U.S. Economy. Panel on Research and Development Statistics at the National Science Foundation, Committee on National Statistics, Division of Behavioral and Social Sciences and Education. Washington, DC: The National Academies Press.
National Science Foundation. 2007a. Research and Development in Industry: 2004. Forthcoming. http://www.nsf.gov/statistics/industry/. Arlington, VA.
National Science Foundation. 2007b. Research and Development in Industry: 2005. Forthcoming. http://www.nsf.gov/statistics/industry/. Arlington, VA.
National Science Foundation. 2007c. Revised Industry Classification Better Reflects Structure of Business R&D in the United States. NSF 07-313. http://www.nsf.gov/statistics/infbrief/nsf07313/. Arlington, VA.
The full set of detailed tables from this survey will be available in the report Survey of Industrial Research and Development, 2005 at http://www.nsf.gov/statistics/industry/. Individual detailed tables from the 2005 survey are available in advance of publication of the full report. For further information, contact
Raymond M. Wolfe
Research and Development Statistics Program
Division of Science Resources Statistics
National Science Foundation
4201 Wilson Boulevard, Suite 965
Arlington, VA 22230
 Company is defined as a business organization of one or more establishments under common ownership or control. The Survey of Industrial Research and Development is conducted jointly by the National Science Foundation (NSF) and the U.S. Bureau of the Census. All estimates from the survey are subject to both sampling and nonsampling errors (see technical notes in the annual reports at http://www.nsf.gov/statistics/industry/).
 For most manufacturing industries, the U.S. Small Business Association defines a small company as having fewer than 500 employees. The Survey of Industrial Research and Development does not sample companies with fewer than five employees because of concerns about respondent burden.
 For more detailed information about the survey sample and methodology, see survey description at http://www.nsf.gov/statistics/srvyindustry/.