Monday, August 07, 2017

Q2 2017 GDP Details on Residential and Commercial Real Estate

by Bill McBride on 8/07/2017 11:15:00 AM

The BEA has released the underlying details for the Q2 advance GDP report.

The BEA reported that investment in non-residential structures increased at a 5.2% annual pace in Q2.  This is a turnaround from early last year when non-residential investment declined due to less investment in petroleum exploration. Investment in petroleum and natural gas exploration increased substantially in Q2, from a $59 billion annual rate in Q4 2016 to a $97 billion annual rate in Q2 2017 - but is still down from a recent peak of $165 billion in Q4 2014.

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 Q2, and is up 13% year-over-year - and is now almost as high as the housing bubble years as a percent of GDP.

Investment in multimerchandise shopping structures (malls) peaked in 2007 and was up slightly year-over-year in Q2.   The vacancy rate for malls is still very high, so investment will probably stay low for some time.

Lodging investment decreased in Q2, however lodging investment is up 8% year-over-year.

My guess is office and hotel investment growth will slow (office vacancies are still high, although hotel occupancy is near record levels).  But investment growth is still very strong this 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 three and a half 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 $261 billion (SAAR) (about 1.4% of GDP), and was up in Q2 compared to Q1.

Investment in home improvement was at a $230 billion Seasonally Adjusted Annual Rate (SAAR) in Q2 (about 1.2% of GDP).  Home improvement spending has been solid.