Friday, August 05, 2011

Q2 2011 Details: Investment in Office, Mall, and Lodging, Residential Components

by Calculated Risk on 8/05/2011 04:05:00 PM

Here are the earlier employment posts (with graphs):
July Employment Report: 117,000 Jobs, 9.1% Unemployment Rate
Employment Summary, Part Time Workers, and Unemployed over 26 Weeks
More Employment (Duration, Education, Diffusion Index)
Employment graph gallery

The BEA released the underlying detail data today for the Q2 Advance GDP report. Here is a look at office, mall and lodging investment:

Office Investment as Percent of GDP Click on graph for larger image in new graph gallery.

This 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 has declined sharply to a new series low as a percent of GDP (data series starts in 1959).

Investment in multimerchandise shopping structures (malls) peaked in 2007 and has fallen by 66% (note that investment includes remodels, so this will not fall to zero). Mall investment increased slightly in Q2 (probably remodels).

The bubble boom in lodging investment was stunning. Lodging investment peaked at 0.32% of GDP in Q2 2008 and has fallen by 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). Something similar will probably happen 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. 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).

Residential Investment ComponentsThis graph shows the various components of RI as a percent of GDP for the last 50 years. Usually the most important components are investment in single family structures followed by home improvement.

Investment in single family structures was just above the record low set in Q2 2009.

Investment in home improvement was at a $153.1 billion Seasonally Adjusted Annual Rate (SAAR) in Q2 (about 1.0% of GDP), significantly above the level of investment in single family structures of $105.8 billion (SAAR) (or 0.7% of GDP).

Brokers' commissions increased slightly in Q2, and are near the lowest level (as a percent of GDP) since the early '80s.

And investment in multifamily structures has been bouncing along at a series low for the last few quarters, although this is expected to increase this year as starts increase.

These graphs show there is currently very little investment in offices, malls and lodging - and also very little investment in most components of residential investment. For Residential Investment, I expect RI to make a positive contribution to GDP this year for the first time since 2005 - mostly because of increases in multifamily investment and home improvement.