The latest data of US real estate activity and general macroeconomic conditions are examined.
US Private Investment and the Business Cycle
Calculated Risk — Bill McBride
“Discussions of the business cycle frequently focus on consumer spending (PCE: Personal consumption expenditures), but the key is to watch private domestic investment, especially residential investment. Even though private investment usually only accounts for around 15% of GDP, the swings for private investment are significantly larger than for PCE during the business cycle, so private investment has an outsized impact on GDP at transitions in the business cycle.
Usually residential investment is a strong contributor to GDP growth and employment in the early stages of a recovery, but not this time Residential investment turned positive in 2011, and made a positive contribution to GDP through 2015.
What does this mean for the business cycle? Usually residential in- vestment would turn down before a recession, and that isn’t happening right now. Instead residential in- vestment is starting to increase.
The below graph shows residential investment as a per cent of GDP. Residential investment as a percent of GDP is still very low, and it seems likely that residential investment as a percent of GDP will increase further in 2016.
Nothing is perfect, but residential investment suggests further growth. Add in the improvement in household balance sheets, some contribution from Federal, state and local governments, and a further increase in non-residential structures in 2016 (ex-energy) – and the economy should continue to grow.”