Q3 GDP Drops, But Residential RE Investment Still Strong

Real U.S. gross domestic product increased at an annualized rate of 1.5 percent in the third quarter of 2015, according to the first estimate by the Bureau of Economic Analysis.

Real U.S. gross domestic product increased at an annualized rate of 1.5 percent in the third quarter of 2015, according to the first estimate by the Bureau of Economic Analysis, which was released on Thursday. In the second quarter, real GDP increased at an annualized 3.9 percent, according to the BEA’s final estimate, so the third quarter’s something of a letdown.

Even so, the 3Q GDP estimate is roughly in line with predictions by economists, who (along with investors and consumers) have been less than sanguine about the economy since the overseas tumult in the summer and a run of weakish employment reports. Still, it’s only the first, or “advance” estimate, and it will be revised two more times, with the next one due on Nov. 24. Often the revision is upward. In any case, even though the annualized rate is down for the quarter, the economy is still growing.

The increase in real GDP in Q3 was driven, according to the BEA, but increasing personal consumption expenditures — people out spending, which is always good for retail — along with state and local government spending, nonresidential fixed investment (including commercial real estate development), exports, and residential fixed investment (apartments, mostly). Acting as drags on the economy were declines in private inventory investment (business spending). Imports, which are a subtraction in the calculation of GDP, increased as the dollar grew stronger.

Residential investment increased at a 6.1 percent annualized rate in Q3, while investment in non-residential structures decreased at a 4 percent rate. On a three-quarter trailing average basis, residential investment is positive, while nonresidential structures is slightly negative. As a percentage of GDP, residential investment is now a little less than 3.5 percent, which is historically low: between 4 percent and 5 percent is closer to the average in most non-recession years in most decades since the end of WWII. Investment in non-residential is roughly 3 percent now, which is also low, but not quite as low as residential investment. Historically (since WWII), non-residential structure investment has roughly been 3 percent to 4 percent.