Lackluster GDP, But RE Growth Better

The U.S. GDP is not spectacular, but its growth reveals some positive tendencies for commercial and residential real estate.

The third and final estimate for fourth quarter U.S. GDP came in at an annualized rate of 2.2 percent, according to the Bureau of Labor Statistics on Friday. The final estimate is based on more complete data than the previously released second and first estimates, but the overall numbers didn’t move much between estimates, with the second estimate coming in at 2.2 percent annualized growth as well. That rate of growth falls squarely in the “not bad” range of GDP, but it isn’t terrific either.

Still, breaking down some of the components of GDP growth reveals some positive tendencies for commercial and residential real estate. They’re only tendencies, since a quarter’s worth of data isn’t the final word on the direction of growth in a particular industry, even one as important as real estate. Investment in nonresidential structures increased at an annualized rate of 5.9 percent during the fourth quarter of  2014, compared with an increase of 4.8 percent during the third quarter. Residential fixed investment increased 3.8 percent during the fourth quarter, compared with an increase of 3.2 percent. So both commercial and residential real estate investment are still growing at a fairly healthy rate, more than the overall economy.

Real personal consumption expenditures — which means people out spending their money on goods and services, an important metric for the retail industry — also turned in a good quarter. PCE (as the government puts it) increased 4.4 percent in the fourth quarter, compared with an increase of 3.2 percent in the third. Much of the upward momentum was in spending for nondurable goods, which were up 4.1 percent, compared with an increase of 2.5 percent in the previous quarter, Durable goods spending increased 6.2 percent; not bad, but in the third quarter, the increase was 9.2 percent.

The BLS also published final GDP numbers for 2014. The nation’s economy grew by 2.4 percent last year, up from 2.2 percent in 2013. Again, that’s a middling showing, but not bad considering the peril the economy was in only five years earlier. The government noted that the uptick in real GDP growth in 2014 was mainly because of growth in nonresidential fixed investment — part of which is commercial real estate — a smaller decrease in federal government spending, and accelerations in PCE and in state and local government spending. Those were partly offset by growing imports (a subtraction from GDP) and a slowing down in residential fixed investment (the sluggish single-family market is a lot of that).