Tuesday, April 21, 2009

A Closer Look at GDP -- Domestic Investment

Yesterday I started a closer look at GDP by focusing on personal consumption expenditures. Today I'm going to look at gross private domestic investment.

First, note that GPDI currently comprise 13% of GDP. However, it has not always been that case during this expansion. Here is a chart of GDPI as a percentage of chained GDP.
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Notice this number increased throughout the expansion, eventually hitting 17.35% in the 1Q06. It has since decreased from that level which tells us that people have stopped their construction binge. And here is a chart of the percentage change in overall GPDI from the previous quarter.

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Starting in 2Q06, gross private domestic investment has slowed. It has only increased in three of the last 11 quarters. And one of those quarters as a .4% increase meaning it just barely increased.

And finally for this segment, here is a chart of total residential and non-residential spending.

First, at the beginning of this chart (1Q01) residential investment was 41% larger than non-residential. By 4Q05 that had increased to 143%. In other words, the US economy went house crazy especially in relation to non-residential construction. In addition notice how non-residential construction started increasing when residential construction started decreasing. This started in 1Q06 and continued until 3Q08. This means two things. First, banks slowed their lending for residential investment and increased their lending for non-residential investment. In addition, it helped to absorb some of the displaced construction workers who were hit by the slowdown in residential construction.