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Q2 GDP: Investment Contributions

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Private investment rebounded in Q2.   Residential investment increased at a 7.5% annual rate in Q2, equipment investment increased at a 7.0% annual rate, and investment in non-residential structures increased at a 5.3% annual rate. 

The following graph shows the contribution to GDP from residential investment, equipment and software, and nonresidential structures (3 quarter trailing average). This is important to follow because residential investment tends to lead the economy, equipment and software is generally coincident, and nonresidential structure investment trails the economy.

For the following graph, red is residential, green is equipment and software, and blue is investment in non-residential structures. So the usual pattern – both into and out of recessions is – red, green, blue.

The dashed gray line is the contribution from the change in private inventories.

Investment ContributionsClick on graph for larger image.

Residential Investment (RI) increased in Q2, but the three quarter average was negative (red).

Residential investment is so low – as a percent of the economy – that this small decline is not  a concern.  However, for the rate of economic growth to increase, RI will probably have to continue to make positive contributions.
  
Equipment and software added 0.4 percentage points to growth in Q2 and the three quarter average moved higher (green).

The contribution from nonresidential investment in structures was also positive in Q2.  Nonresidential investment in structures typically lags the recovery, however investment in energy and power provided a boost early in this recovery. 

I expect to see all areas of private investment increase over the next few quarters – and that is key for stronger GDP growth.
Calculated Risk

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