The first graph below shows the contribution to GDP from residential investment, equipment and software, and nonresidential structures (3 quarter trailing 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.
In the 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.
Click on graph for larger image.
Residential investment (RI) decreased at a 6.0% annual rate in Q3. Equipment investment increased at a 8.6% annual rate, and investment in non-residential structures decreased at a 5.2% annual rate.
On a 3 quarter trailing average basis, RI (red) is slightly negative, equipment (green), and nonresidential structures (blue) are positive.
The slight dip in RI isn’t concerning – as long as it doesn’t continue!
I’ll post more on the components of non-residential investment once the supplemental data is released.
The second graph shows residential investment as a percent of GDP.
Residential Investment as a percent of GDP decreased in Q3, but has generally been increasing. RI as a percent of GDP is only just above the bottom of the previous recessions – and I expect RI to continue to increase for the next couple of years.
I’ll break down Residential Investment into components after the GDP details are released.
Note: Residential investment (RI) includes new single family structures, multifamily structures, home improvement, broker’s commissions, and a few minor categories.
The third graph shows non-residential investment in structures, equipment and “intellectual property products”. Investment in equipment – as a percent of GDP – picked up.
Investment in residential structures declined slightly in Q3.