Q1 GDP: Investment Contributions

Private investment in Q1 was very weak.

The following graph shows the contribution to GDP from residential investment, equipment and software, and nonresidential structures (3 quarter centered average). This is important to follow because residential investment tends to lead the economy, equipment and software is generally coincident, and nonresidential structure investment trails the economy.

For the following graph, red is residential, green is equipment and software, and blue is investment in non-residential structures. So the usual pattern – both into and out of recessions is – red, green, blue.

The dashed gray line is the contribution from the change in private inventories.

Investment ContributionsClick on graph for larger image.

Residential Investment (RI) made a negative contribution to GDP in Q1 for the second consecutive quarter (red).

Residential investment is so low – as a percent of the economy – that this 2 quarter decline is not much of a concern.  However, for the rate of economic growth to increase, RI will probably have to make positive contributions.
  
Equipment and software investment also made a negative contribution in Q1, and the three quarter average is barely positive.

The contribution from nonresidential investment in structures was zero in Q1.  Nonresidential investment in structures typically lags the recovery, however investment in energy and power provided a boost early in the recovery. 

I expect to see investment to increase over the next few quarters – and that is key for stronger GDP growth.

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