Monday, January 29, 2018

Q4 2017 GDP Details on Residential and Commercial Real Estate

by Bill McBride on 1/29/2018 04:39:00 PM

The BEA has released the underlying details for the Q4 advance GDP report.

The BEA reported that investment in non-residential structures increased at a 6.8% annual pace in Q4.  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 Q4, from a $55 billion annual rate in Q4 2016 to a $107 billion annual rate in Q4 2017 - but is still down from a recent peak of $165 billion in Q4 2014.

Without the increase in petroleum and natural gas exploration, non-residential investment would be down year-over-year.

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.

Investment in offices decreased in Q4, and is down 7% year-over-year.

Investment in multimerchandise shopping structures (malls) peaked in 2007 and was up 4% year-over-year in Q4.   The vacancy rate for malls is still very high, so investment will probably stay low for some time.

Lodging investment increased in Q4, and lodging investment is up 5% 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 last four 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 $272 billion (SAAR) (about 1.4% of GDP), and was up in Q4 compared to Q3.

Investment in home improvement was at a $238 billion Seasonally Adjusted Annual Rate (SAAR) in Q4 (about 1.2% of GDP).  Home improvement spending has been solid.