Monday, December 17, 2012

GDP Breakdown: Gross Private Domestic Investment

The third largest component of GDP is gross private domestic investment (GPDI) which is defined as follow:
Gross private domestic investment (1–19) consists of fixed investment (1–20) and the change in private inventories (1–25). Fixed investment consists of both nonresidential (1–21) fixed investment and residential (1–24) fixed investment.

Change in private inventory (CBI) looks like an interesting recession indicator, though maybe a bit of a laggard.  Investment has been hard hit by the Great Recession, especially residential investment.  During the Great Recession, investment dropped to its lowest total of GDP (13%) since 1960.
GDP by component percent share.  Gross private domestic investment (red).
Gross private domestic investment (GPDI) total value breakdown: fixed private investment (FPI) and change in private inventories (CBI).
GPDI by percent share of each component. CBI tends to go negative before or during recessions.
Non-residential investment (PNFI) and residential investment (PRFI).  Fixed private investment as a percent of gross investment (FPI/GPDI).
Non-residential and residential investment as percent of fixed investment.
Change in private inventory.


  1. At Calculated Risk, GDPI and optimism.

  2. ...and a response to the Calculated Risk post, from Marcus Nunes.

    Marcus goes off the topic of GDPI, but he does have an interesting point of view on things and he makes great graphs.

  3. Art,

    If you look at the 'Residential Investment as Percent of GDP' graph at Calculated Risk, you'll see that it is a near exact correlation with housing starts (which makes perfect sense).

    McBride (CR) is correct to say there is a lot of optimism considering that residential investment has yet to have a sifnificant rebound (in housing starts). Current low housing demand is due, of course, to low credit availability; prices of course are pushed up by the low housing inventory and low number of housing starts. Contrast that to what Gary Schilling had predicted would happen in 2012: a surge of foreclosures will cause a downturn in housing prices. This didn't happen but I still think Schilling's line of thinking was correct: shadow inventories are concealing the true nature of the housing market. The government sponsored refinance program seems to be having some positive effect in preventing foreclosures, though some posit that it is merely delaying a majority of foreclosures.

    Mark Nunes is right, the US central bank is an activist central bank, for sure (which is why we see all the comparison of Ben Bernanke to John Law, I'm guilty of this, too). But I suppose that is the way it has always been; except now the foot is pressed more heavily on the gas pedal.

    I'll post a couple follow ups to my most recent post on the S&P 500. For right now, I see some an interesting correlation between corporate profits and gross private domestic investment, which are about equal.