A few comments on GDP and investment in the fourth quarter

from Estimated risk per 26.01.2023 13:47:00

Note. The first two charts, Contributions and Housing Investment as a percentage of GDP, are useful for predicting recessions caused by the Fed. RI as a percentage of GDP usually declines long before a recession. This is what I’m looking at.

Formerly from BEA: Gross domestic product, Q4 2022 (preliminary estimate)

Real gross domestic product (GDP) increased at an annual rate of 2.9 percent in the fourth quarter of 2022., according to a “preliminary” estimate published by the Bureau of Economic Analysis. In the third quarter, real GDP increased by 3.2 percent. …

The increase in real GDP reflects increased private investment in reservesconsumer spending, federal government spending, state and local government spending, and non-residential investment that has been partially offset decline in investment in fixed assets and export. Imports, which are subtracted from the calculation of GDP, have decreased.
added accent

The preliminary 4Q GDP report of 2.9% yoy came in above expectations, partly due to the positive impact of increased inventories.

Personal Consumption Expenditure (PCE) increased 2.1% year on year in the fourth quarter.

The graph below shows the contribution to GDP of housing investment, hardware and software, and non-residential buildings (3-quarter moving average). This is important to follow because housing investment tends to lead the economyhardware and software are broadly the same, and the non-residential investment structure is inferior to the economy.

On the graph, red is residential, green is hardware and software, and blue is investment in non-residential buildings. So, the usual scheme – both in and out of a recession – is red, green, blue.

Of course, with the sudden economic shutdown due to COVID-19, the usual pattern did not apply.

The dotted gray line is the contribution of the change in private stocks.

Investment contributionsClick on the graph to enlarge the image.

Housing investment (RI) was down 26.7% year on year in the fourth quarter. Investment in equipment decreased by 3.7% year on year, while investment in non-residential buildings increased by 0.4% year on year.

The contribution to GDP for the fourth quarter from investment in private stocks was 1.46 percentage points.

Based on a 3-quarter moving average, RI (red) is down, equipment (green) is up, and non-residential buildings (blue) are still down.

I will release more information on non-residential investment components as soon as more data is released.

Housing investmentThe second graph shows housing investment as a percentage of GDP.

Housing investment as a percentage of GDP declined in the fourth quarter.

I will break down housing investment into components after the GDP data is released.

Note. Housing investment (RI) includes new single-family and multi-family buildings, home improvement, broker commissions, and several minor categories.

non-residential investmentThe third graph shows non-residential investment in structures, equipment and “intellectual property products”.

Investment in non-residential buildings increased slightly in Q4 as a percentage of GDP.