Today, the Bureau of Economic Analysis (BEA) released their third and final installment of the Q4 2006 GDP report showing further weakening to fixed residential and non-residential investment.
Residential fixed investment, that is, all investment made to construct or improve new and existing residential structures including multi–family units, continued to accelerate to the downside registering a decline of 19.1% shaving 1.21% from overall GDP.
Additionally, as many had predicted, non-residential investment now appears to be slumping, registering a 3.1% decline for the first time since Q1 2003.
Taken together, fixed investment (both residential and non-residential) depressed GDP by a stunning 1.54%.
To better put the negative effects of the fall-off of fixed investment in perspective, the 1.54% on the downside is roughly equivalent to the 1.53% upward effects from all purchase activity related to all non-durable and durable goods including food, clothing, gasoline, fuel oil, motor vehicles, furniture, all household equipment, all the way to aircraft.
Keep in mind that both Greenspan and Bernanke suggested last fall that the housing decline might depress GDP by roughly 1%.
It appears now that they had significantly underestimated the negative effects of the decline of residential housing as well as totally missing the non-residential slowdown currently brewing.
With the subprime meltdown and its harsh effects on lenders, home builders, home buyers and home owners, the Q1 2007 will likely show even further declines to fixed investment placing even additional downward pressure on GDP.
The following chart shows real residential and non-residential fixed investment versus overall GDP since Q1 2003 (click for larger version).