Monday, October 29, 2018

Q3 2018 GDP Details on Residential and Commercial Real Estate

by Bill McBride on 10/29/2018 01:00:00 PM

The BEA has released the underlying details for the Q3 advance GDP report.

The BEA reported that investment in non-residential structures decreased at a 7.9% annual pace in Q3.  Investment in petroleum and natural gas exploration decreased slightly in Q3 compared to Q2, but has increased substantially recently.

Without the increase in petroleum and natural gas exploration, non-residential investment would only be up about 4% 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 Q3, and is up 10% year-over-year.

Investment in multimerchandise shopping structures (malls) peaked in 2007 and was down about 7% year-over-year in Q3.   The vacancy rate for malls is still very high, so investment will probably stay low for some time.

Lodging investment increased in Q3, and lodging investment is up 7% 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 six years and will probably stay there for a long time - although single family investment has been down a little recently.

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 some further increase.

Investment in single family structures was $286 billion (SAAR) (about 1.4% of GDP), and was down slightly in Q3 compared to Q2.

Investment in multi-family structures decreased in Q3.

Investment in home improvement was at a $264 billion Seasonally Adjusted Annual Rate (SAAR) in Q3 (about 1.3% of GDP).  Home improvement spending has been solid.