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Thursday, April 28, 2011

Residential Investment and Non-Residential investment in Structures at Record Lows as Percent of GDP

by Calculated Risk on 4/28/2011 10:08:00 AM

First from the NAR: Pending Home Sales Rise Again in March

The Pending Home Sales Index, a forward-looking indicator based on contract signings, rose 5.1 percent to 94.1 in March from a downwardly revised 89.5 in February [revised down from 90.8]. The index is 11.4 percent below 106.2 in March 2010 ...
This suggests a slight increase in sales in April and May.

And a couple more graphs from the GDP report ...

Residential Investment Click on graph for larger image in graph gallery.

Residential Investment (RI) decreased in Q1, and as a percent of GDP, RI is at a post-war record low at 2.21%.

Some people have asked how a sector that only accounts for 2.2% of GDP could be so important? The answer is that usually RI accounts for a large percentage of the employment and GDP growth in the first year or so of a recovery (and increases in RI have a positive impact on other areas like furniture, etc). Not this time because of the huge overhang of existing vacant units.

I'll break down Residential Investment (RI) into components after the GDP details are released this coming week. Note: Residential investment (RI) includes new single family structures, multifamily structures, home improvement, broker's commissions, and a few minor categories.

I expect RI to increase in 2011 and add to both GDP and employment growth - for the first time since 2005 (even with the weak start in Q1).

non-Residential InvestmentThe second graph shows non-residential investment in structures and equipment and software.

Equipment and software investment has been increasing sharply, and investment growth increased in Q1 at a 11.6% annualized rate.

Non-residential investment in structures is at a record low of 2.48% of GDP, and will probably stayed depressed for some time. I expect non-residential investment in structures to bottom later this year, but the recovery will be very sluggish for some time with the high vacancy rates for offices and malls. I'll also post the investment in offices, malls and hotels after the GDP details are released.

Advance Report: Real Annualized GDP Grew at 1.8% in Q1