A Bit on Private Investment

The collapse in private investment has been the principal drag on GDP growth since 2006. From 2006 through the end of 2009, it fell by 28 %, while the other three areas of GDP - private consumption, net trade, and government spending, all improved. It has fallen from 18 % to 11 % of total economic activity as measured by GDP.



Looking at private investment, about 70 % of the drop is from Private Structures (housing), and another 20 % from Equipment and Software.

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In terms of GDP stagnation, the recession is almost entirely due to the collapse of investment in housing, and the implosion of the housing bubble. This is not a consumption-led recession. Personal consumption has risen from 69 % of GDP at the beginning of 2006, to 71 % as of quarter 4, 2009. Consumption of services managed to grow every quarter, even during the steepest part of GDP decline.

This suggest a few things. Housing isn't going to come back in a big way. And folks who spent a good part of their careers building houses and working in real estate are going to have a hard time transitioning to another field. Second, strength in services means the wealthy are doing just fine. But the increase in private consumption in relation to GDP means the so-called 'imbalances' haven't gone away, either in the U.S., or it looks like, overseas.