Saturday, January 30, 2010

Investment Contributions to GDP: Leading and Lagging

by Bill McBride on 1/30/2010 11:15:00 AM

By request, the following graph is an update to: The Investment Slump in Q2

The following graph shows the rolling 4 quarter contribution to GDP from residential investment, equipment and software, and nonresidential structures. 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.

Investment Contributions Click on graph for larger image in new window.

Residential Investment (RI) has made a positive contribution to GDP the last two quarters, and the rolling four quarter change is moving up.

Equipment and software investment made a small positive contribution to GDP in Q3, and a larger contribution in Q4. The four quarter average is also moving up.

As expected, nonresidential investment in structures is now declining sharply as major projects are completed. The economy will recover long before nonresidential investment in structures recovers.

And as always, residential investment is the best leading indicator for the economy.

Last 10 Posts