By New_Deal_democrat April 30, 2014 12:44 pm
Decline in real residential investment a yellow flag for possible US economic downturn in 2015
Back in 2007, Prof. Edward Leamer of UCLA presented a paper at the Jackson Hole symposium called <a href="http://www.nber.org/papers/w13428">Housing IS the business cycle</a>. In it he pointed out that, on average, since World War 2, real residential fixed investment as a share of GDP has typically started to decline about 5 quarters before the onset of a recession, and served as the first warning of the downturn in the economy.
So it is not a minor datapoint that in the first quarter of 2014, for the second quarter in a row, real residential fixed investment declined both as a share of GDP, and also absolutely.
Here is a graph of real private fixed residential investment as a share of GDP:
And here is a graph of the absolute value of private residential fixed investment:
This is the second long leading indicator to roll over (interest rates on corporate bonds made a bottom in July 2012). While none of the other long leading indicators - corporate profits, money supply, housing permits, or real retail sales per capita - appears to have rolled over yet, the outlook for continued US economic growth in 2015 has become more problematic.
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