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Housing-Related Spending Made Up 17.3 Percent of GDP in Fourth Quarter 2013

Housing-Related GDP Grew at the Same Rate as Overall GDP

Molly Boesel

The Bureau of Economic Analysis released its second estimate of fourth quarter 2013 gross domestic product (GDP) today and the numbers show downward revisions in overall GDP and housing-related expenditures from the advance estimate released in January 2014. The fourth quarter 2013 year-over-year growth rate for overall GDP was revised downward from 2.7 percent to 2.5 percent and the year-over-year growth rate for housing-related GDP was revised downward from 2.6 percent to 2.5 percent. Quarter-over-quarter revisions were larger, with fourth quarter 2013 overall GDP quarterly growth revised from 3.2 percent to 2.4 percent and housing-related GDP quarterly growth revised from -0.4 percent to -0.7 percent.

To calculate the portion of domestic spending that is related to housing, we look at three expenditures from the release: residential investment (the construction of new single- and multi-family houses), spending on housing services (rent, owner’s equivalent rent and utilities) and spending on furnishings and durable goods. Together, these expenditures made up 17.3 percent of total real GDP in the fourth quarter of 2013, down slightly from a year ago, and down from the high of 20.6 percent in the third quarter of 2005. Housing services were 12.3 percent of housing-related GDP in the fourth quarter 2013, followed by residential investment at 3.1 percent and furnishings and durable goods at 2.0 percent (Figure 1).  The share of GDP attributable to housing services and spending on durable goods has been stable for the past decade, with the fluctuation in housing-related GDP coming from residential investment. Residential investment made up 6.2 percent of GDP at its peak in 2005, fell to 2.5 percent of GDP in 2010 and  slowly came back in 2013.

In terms of year-over-year growth rates, housing-related GDP growth has lagged overall GDP growth for much of the economic recovery. In the latest quarter, overall GDP grew by 2.5 percent year over year, and housing-related GDP increased by 2.5 percent year over year. Figure 2 shows the year-over-year growth rates of the three components of housing-related GDP. Because housing services make up the majority of housing-related spending, the stability in this sector has led to stable growth in housing-related GDP. The more volatile segments of housing-related GDP are residential investment and spending on furnishings and durable goods. The amount of residential investment peaked in late 2005, after which it began to plummet, ultimately posting double-digit year-over-year declines for three and a half years. While residential investment is 45 percent below peak levels, it gained 33 percent from the trough hit in the third quarter of 2010. Changes in spending on furnishings and durable goods echo changes in residential investment, but the effects are muted as these expenditures are not completely dependent on new construction.  Residential investment grew by 6.6 percent and spending on furnishings and durable goods grew by 7.1 percent in the latest quarter.

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