In looking at the BEA’s latest GDP figures for the second quarter of 2014, one thing that leapt out at me was something I’ve been waiting for a long time:
Real nonresidential fixed investment increased 8.4 percent in the second quarter, compared with an increase of 1.6 percent in the first. Investment in nonresidential structures increased 9.4 percent, compared with an increase of 2.9 percent. Investment in equipment increased 10.7 percent, in contrast to a decrease of 1.0 percent. Investment in intellectual property products increased 4.4 percent, compared with an increase of 4.6 percent. Real residential fixed investment increased 7.2 percent, in contrast to a decrease of 5.3 percent.
That is a whopping increase, a long time in coming. Note especially the 11% increase in equipment investment and the 9% increase in nonresidential structures. That’s exactly what we need to get the economy moving again.
Other portions of the economy are less spectactular. Our trade picture is actually worsening which, in a weird way is kind of encouraging. Our balance of payments almost always worsens when the economy is improving. But government spending, PCE, and so on are nothing to write home about. It’s the BI that’s booming.
The question on my mind is why now? Are they expecting a shoe to drop?
Maybe it’s simply an anomalous reading.
I think you will find it not that surprising nor dispositive in context. There was a similar number for Q4 2013. Both of the large increases occurred in quarters where apparent GDP growth was artificially bolstered by inventory swings. NRFI was poor before the 2013 surge, and poor after, when the inventory overhang resulted in a bad GDP number. So, whither Q3 2014??
Do we need that inventory to sell through before the gates can really open? I think so. Let’s hope I’m wrong. Consumer debt and PCE are not encouraging.
One would think that these business investments in long lived assets would not be so dependent on quarterly inventory swings. However, this simply brings up a different aspect of what I posit. The stock of assets is badly aged, and businesses may be looking for any reason to invest but are worried about – to coin a phrase – “doing stupid shit.”
PS – Note that the Q3 GDP call down has been initiated, based upon “unexpected” lower consumption expenditures.
There is no truth to the rumor that Menzie Chin has immediately gone to work doing a hatchet job on Wisconsin…….
I believe it is because businesses now have confidence since Obama will leave in 2016. Or get impeached. Or something.
More seriously, hotel occupancy is up and has been for quite a while suggesting more than a one quarter event.
http://www.calculatedriskblog.com/2014/08/hotels-occupancy-up-5-revpar-up-110.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+CalculatedRisk+%28Calculated+Risk%29
Steve
I’d be careful, steve. As the top graph in the first citation below shows it is in fact a quarter to quarter to quarter phenomenon – quite volatile – at this point. I suspect you wouldn’t want to take ownership-as-evidence for 6 of the last 8 quarters.
http://www.businessinsider.com/capex-boom-is-happening-2014-8
This citation is just a little ditty on how they have been fiddling with numbers, in this one intellectual property.
http://www.clevelandfed.org/research/trends/2014/0214/01gropro.cfm
As for hotel occupancy, that’s a bogus stat relative to the point at hand. Hotel construction has been nowhere for several years so occupancy rates would trend up if you just sat on your thumbs. I don’t know where this is going, but I find no concrete reason for optimism right now. Consumer personal finances are weak. At the end of the day, businesses are in business to make final sales to consumers. I would suggest it is a very, very regional and situational economy. Give me a company making anything construction related in TX……….but not the upper Midwest. Give me a company selling stuff to people trading down in their purchases by quality and features to cheaper brands. Give me anything subsidized, like health care and education……….although the latter may be reaching a tipping point.
BTW – given the miserable numbers for PNRFI in 6/8 prior quarters (and other indicators), BusinessInsider should be embarrassed to publish that headline. Lot’s of one hit wonders out there………know what I mean, man? Know what I mean:?
http://www.youtube.com/watch?v=eabefjsJsAQ
I don’t know where this is going, but I find no concrete reason for optimism right now.
Now that the border has been dissolved, millions of Sergei Brins are flooding into the country. Once they’ve sold advertising for everything to everyone on every surface possible, all will be awesome.
Personally I’m looking for a Guatemalan Sergei Brin to digitize advertizing for forehead tattoos using implanted fiber-optics and wi-fi. And a big goddamn server farm, powered by solar panels that blind pilots and fry birds in mid-air. Our motto will be “We don’t give a shit, we’re rich.”