by Bill McBride on 2/01/2012 07:21:00 PM
Wednesday, February 01, 2012
The BEA released the underlying details this week for the Q4 Advance GDP report. As expected, the recent pickup in non-residential structure investment has been for power and communication.
The first graph shows investment in offices, malls and lodging as a percent of GDP. Office investment as a percent of GDP peaked at 0.46% in Q1 2008 and then declined sharply. Investment has increased a little recently (probably mostly tenant improvements as opposed to new office buildings).
Click on graph for larger image.
Investment in multimerchandise shopping structures (malls) peaked in 2007 and is down about 62% from the peak (note that investment includes remodels, so this will not fall to zero).
Lodging investment peaked at 0.32% of GDP in Q2 2008 and has fallen by about 80%.
Notice that investment for all three categories typically falls for a year or two after the end of a recession, and then usually recovers very slowly (flat as a percent of GDP for 2 or 3 years). This is happening again, and there will not be a recovery in these categories until the vacancy rates fall significantly.
The second graph is for Residential investment (RI) components as a percent of GDP. According to the Bureau of Economic Analysis, RI includes new single family structures, multifamily structures, home improvement, broker's commissions, and a few minor categories (dormitories, manufactured homes).
Usually the most important components are investment in single family structures followed by home improvement.
Investment in single family structures has been moving sideways for almost three years, although it might be moving up a little.
Investment in home improvement was at a $158 billion Seasonally Adjusted Annual Rate (SAAR) in Q4 (about 1.0% of GDP), significantly above the level of investment in single family structures of $109 billion (SAAR) (or 0.7% of GDP).
Brokers' commissions declined slightly in Q4, and has been moving sideways as a percent of GDP.
And investment in multifamily structures is still moving sideways as a percent of GDP (increasing slowly in dollars). This is a small category, and even though investment is increasing, the positive impact on GDP will be relatively small.
These graphs show there is currently very little investment in offices, malls and lodging. It appears that residential investment is starting to pickup, but from a very low level.
• ADP: Private Employment increased 170,000 in January
• Construction Spending increased 1.5% in December
• ISM Manufacturing index indicates faster expansion in January
• U.S. Light Vehicle Sales at 14.18 million annual rate in January