Wednesday, May 11, 2016

Q1 2016 GDP Details on Residential and Commercial Real Estate

by Bill McBride on 5/11/2016 01:58:00 PM

The BEA has released the underlying details for the Q1 advance GDP report.

In April the BEA reported that investment in non-residential structures decreased at a 10.7% annual pace in Q1.

The decline was due to less investment in petroleum exploration. Investment in petroleum and natural gas exploration declined from a $64.6 billion annual rate in Q4 to a $38.7 billion annual rate in Q1.  "Mining exploration, shafts, and wells" investment is down 68% year-over-year.

OUCH!

Excluding petroleum, non-residential investment in structures increased at a 10.2% annual rate in Q1.  That is solid growth.

Office Investment as Percent of GDPClick on graph for larger image.

The first graph shows investment in offices, malls and lodging as a percent of GDP. Office, mall and lodging investment has increased a little recently, but from a very low level.

Investment in offices increased in Q1, and is up 28% year-over-year -increasing from a very low level - and is now above the lows for previous recessions (as percent of GDP).

Investment in multimerchandise shopping structures (malls) peaked in 2007 and is unchanged year-over-year.   The vacancy rate for malls is still very high, so investment will probably stay low for some time.

Lodging investment increased further in Q1, and with the hotel occupancy rate near record levels, it is likely that hotel investment will increase further in the near future.  Lodging investment is up 32% year-over-year.

Residential Investment Components The second graph is for Residential investment components as a percent of GDP. According to the Bureau of Economic Analysis, RI includes new single family structures, multifamily structures, home improvement, Brokers’ commissions and other ownership transfer costs, and a few minor categories (dormitories, manufactured homes).

Home improvement was the top category for five consecutive years following the housing bust ... but now investment in single family structures has been back on top for the three years and will probably stay there for a long time.

However - even though investment in single family structures has increased from the bottom - single family investment is still very low, and still below the bottom for previous recessions as a percent of GDP. I expect further increases over the next few years.

Investment in single family structures was $234 billion (SAAR) (about 1.3% of GDP), and is up 10.4% year-over-year.

Investment in home improvement was at a $195 billion Seasonally Adjusted Annual Rate (SAAR) in Q1 (about 1.1% of GDP), and is up 11.8% year-over-year.