Monday, July 30, 2018

Q2 2018 GDP Details on Residential and Commercial Real Estate

by Bill McBride on 7/30/2018 03:15:00 PM

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 13.3% annual pace in Q2.  Investment in petroleum and natural gas exploration increased substantially recently, from a $63 billion annual rate in Q4 2016 to a $140 billion annual rate in Q2 2018 - but is still down from a recent peak of $192 billion in Q4 2014.

Without the increase in petroleum and natural gas exploration, non-residential investment would only be up about 3% 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 increased in Q2, and is up 8% year-over-year.

Investment in multimerchandise shopping structures (malls) peaked in 2007 and was down about 2% 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 increased in Q2, and lodging investment is up 11% 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 $289 billion (SAAR) (about 1.4% of GDP), and was up in Q2 compared to Q1.

Investment in multi-family structures increased in Q2.

Investment in home improvement was at a $256 billion Seasonally Adjusted Annual Rate (SAAR) in Q2 (about 1.25% of GDP).  Home improvement spending has been solid.