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Housing-Related Spending Made Up 17.6 Percent of GDP in the First Quarter of 2014

Revisions Show Largest Monthly Decrease in GDP Since 2009

Molly Boesel    |    Housing Trends

The U.S. Bureau of Economic Analysis released its third estimate of Q1 2014 gross domestic product (GDP) today and the numbers show downward revisions in overall GDP growth from the second estimate released in May 2014. The first-quarter 2014 year-over-year growth rate for overall GDP was 1.5 percent, revised down from 2 percent, and the housing-related GDP growth was revised up to 2.1 percent from 2 percent. Quarter-over-quarter revisions showed that overall GDP shrank in the first quarter of 2014 by 2.9 percent, which was revised from the second estimate that showed a decrease of 1 percent. This is the largest monthly decrease in real GDP since Q1 2009. Housing-related GDP quarter-over-quarter growth was revised up from 3.3 percent to 3.6 percent. To calculate the portion of domestic spending that is related to housing, we look at three specific expenditures: 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 17.6 percent of total real GDP in the first quarter of 2014, the same level as a year ago and down from the high of 20.6 percent in the third quarter of 2005. Housing services were 12.6 percent of housing-related GDP in Q1 2014, followed by residential investment at 3.1 percent and furnishings and durable goods at 2 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 mostly coming from residential investment. Residential investment made up 6.2 percent of GDP at its peak in 2005.

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 still 45 percent below peak levels, it has gained 31 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. Growth in residential investment has slowed dramatically since the fourth quarter of 2013, up just 6.9 percent in Q4 2013 and 2.7 percent in Q1 2014. Spending on furnishings and durable goods grew by 5.6 percent in the latest quarter.

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