Investment Contribution to GDP: Leading and Lagging Sectors – The following graph shows the rolling 4 quarter contribution to GDP from residential investment, equipment and software, and nonresidential structures. 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. For the following graph, red is residential, green is equipment and software, and blue is investment in non-residential structures. The usual pattern – both into and out of recessions is – red, green, blue. Residential Investment (RI) made a negative contribution to GDP in Q3 2010, and the four quarter rolling average is negative again. Equipment and software investment has made a significant positive contribution to GDP for five straight quarters (it is coincident). The contribution from nonresidential investment in structures was slightly positive in Q3. .
Another Tepid Quarter for GDP – BEA released its first estimates for third-quarter GDP yesterday. Headline growth was a disappointing, if not surprising, 2.0%. Here’s my usual graph of how various components of the economy contributed to overall growth: Housing fell back into the red, while non-residential structures eked out a small gain. Consumers continued to spend at a moderate pace (consumer spending grew at a 2.6% rate, thus adding 1.8 percentage points to growth). But the big stories were the continued boost from inventories, and the continued drag (in GDP-accounting terms) from imports. The pessimistic take on inventories (see, for example, this tweet from Nouriel Roubini) is that the third quarter build up was unintentional, and thus is bearish for fourth quarter growth. The optimistic take, I suppose, is that maybe businesses see stronger demand ahead. But that feels rather, er, speculative.
For my usual set of caveats about the import figures, see my last post on the GDP numbers.