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A Few Comments on Q1 GDP and Investment

by Calculated Risk on 4/28/2022 12:22:00 PM

Earlier from the BEA: Gross Domestic Product, Fourth Quarter and Year 2021 (Advance Estimate)

Real gross domestic product (GDP) decreased at an annual rate of 1.4 percent in the first quarter of 2022, according to the “advance” estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 6.9 percent….

The decrease in real GDP reflected decreases in private inventory investment, exports, federal government spending, and state and local government spending, while imports, which are a subtraction in the calculation of GDP, increased. Personal consumption expenditures (PCE), nonresidential fixed investment, and residential fixed investment increased.
emphasis added

The advance Q1 GDP report, at -1.4% annualized, was below expectations, primarily due to a negative impact from trade and a decrease in inventories.

Personal consumption expenditures (PCE) increased at a 2.7% annualized rate in Q1.

The graph below shows the contribution to GDP from residential investment, equipment and software, and nonresidential structures (3 quarter trailing average). 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.

In the graph, red is residential, green is equipment and software, and blue is investment in non-residential structures. So, the usual pattern – both into and out of recessions is – red, green, blue.

Of course – with the sudden economic stop due to COVID-19 – the usual pattern didn’t apply.

The dashed gray line is the contribution from the change in private inventories.

Click on graph for larger image.

Residential investment (RI) increased at a 2.1% annual rate in Q1. Equipment investment increased at a 15.3% annual rate, and investment in non-residential structures increased at a 9.2% annual rate.

The contribution to Q1 GDP from investment in private inventories was -0.84 percentage points.

On a 3-quarter trailing average basis, RI (red) is unchanged, equipment (green) is up, and nonresidential structures (blue) is still down.

I’ll post more on the components of non-residential investment once the supplemental data is released.

The second graph shows residential investment as a percent of GDP.

Residential Investment as a percent of GDP increased in Q1.

I’ll break down Residential Investment into components after the GDP details are

Note: Residential investment (RI) includes new single-family structures,
multifamily structures, home improvement, broker’s commissions, and a few minor

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

Investment in non-residential structures increased in Q1 as a percent GDP.

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