by Calculated Risk on 8/07/2013 05:01:00 PM

The BEA released the underlying details for the Q2 advance GDP report this afternoon.

The first graph is for Residential investment (RI) 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).

Note: A change in the comprehensive revision was:

The presentation of the components of residential fixed investment was updated to reflect the expansion of the ownership transfer costs of residential fixed assets that are recognized as fixed investment. “Brokers’ commissions and other ownership transfer costs” is presented in place of “brokers’ commissions on sale of structures.”

A few key points:
1) Usually the most important components are investment in single family structures followed by home improvement. However home improvement has been the top category for nineteen consecutive quarters, but that is about to change. Investment in single family structures should be the top category again soon.

2) Even though investment in single family structures has increased significantly from the bottom, single family investment is still very low - and still below the bottom for previous recessions. I expect further increases over the next few years.

3) Look at the contribution from Brokers’ commissions and other ownership transfer costs. This is the category mostly related to existing home sales (this is the contribution to GDP from existing home sales). If existing home sales are flat, or even decline due to fewer foreclosures, this will have little impact on total residential investment.

Click on graph for larger image.

Investment in home improvement was at a $171 billion Seasonally Adjusted Annual Rate (SAAR) in Q2 (about 1.0% of GDP), still above the level of investment in single family structures of $167 billion (SAAR) (also 1.0% of GDP).  Single family structure investment will probably overtake home improvement as the largest category of residential investment in the next quarter or so.

The second graph shows investment in offices, malls and lodging as a percent of GDP. Office, mall and lodging investment has increased recently, but from a very low level.

Investment in offices is down about 56% from the recent peak (as a percent of GDP).  There has been some increase in the Architecture Billings Index lately, so office investment might start to increase.  However the office vacancy rate is still very high, so any increase in investment will probably be small.

Investment in multimerchandise shopping structures (malls) peaked in 2007 and is down about 65% from the peak (note that investment includes remodels, so this will not fall to zero).   The vacancy rate for malls is still very high, so investment will probably stay low for some time.

Lodging investment peaked at 0.31% of GDP in Q3 2008 and is down about 68%.   With the hotel occupancy rate close to normal, it is possible that hotel investment will probably continue to increase.

These graphs show there is currently very little investment in offices, malls and lodging. And residential investment is starting to pickup, but from a very low level.