Word to the Wise: FPI (Investment) includes Residential Construction

So I see a lot of people looking at low investment in the US and saying this is the problem. And, I don’t disagree!

But then they assume that investment is a reflection of business, in particular corporations, willingness to expand capital. This is wrong. The majority of investment is in structures and the majority of structures are residential.

So when we say “investment” the biggest component of that is housing.

Lets look at some graphs, because that makes anything more fun.

So this is FPI or fixed private investment. Non-fixed investment is inventories. They are counted as investments basically to make GDP add up to the right number, that’s all. So FPI is investment in things that are supposed to yield long term benefits.

That’s ugly. No wonder our economy sucks.

Alright but lets takeout residential investment.

That looks better already. Still kind of down in the dumps though.

Lets take out construction all together. The BEA calls that Investment in Equipment and Software as opposed to Structures.

Well, that’s much better. Indeed its performed better than GDP since the end of the recession.

Of course investment is more volatile so it might be helpful to use different axes and a shorter time horizon.

Still looks like E&S is doing well.

Another way would be to compare the growth rate in E&S now to in the past. This is especially fun because we get to see growth rates relative to the 1990s.

You can see there was a point where we were growing faster than even in the 90s though we have slowed to merely peak nils level now. Still investment in E&S is strong.

Well, maybe something funky is going on here in the GDP stats. But we can look at Cap-Ex, or New Orders for Capital Equipment. That’s what Wall Street thinks of as business investment.

Here is the raw chart.

We can also look at growth rates

Again very strong performance.

I am trying to think of what other proxies we can use. We can do Industrial Production of Business Equipment

That’s a bit lower, which I believe is represented by lack-luster demand for aircraft.

If you look at manufactures orders for transportation equipment generally, its had rough go of it.

Now a lot of that is cars and trucks, obviously, but aircraft hasn’t been doing well either.