exist Jim’s comments on the early release of Q3He pointed out that residential investment is disappointing. It is also worrying that the growth rate of fixed investment in the physical business has slowed down and equipment investment has fallen.
figure 1: The log ratio of total equipment investment to GDP (blue, left scale) and the log ratio of total non-residential investment to GDP (blue-green, right scale) are both in Ch.2012$, SAAR. The NBER decline date is shaded in gray. The orange dotted line in 2018Q1 is the announcement of Act 301; the green dotted line in the first quarter of 2020 is used to implement public health measures. Source: BEA 2021Q3 advance release, NBER and author’s calculations.
As a logarithmic ratio of real GDP, both series are higher than the peak at the last peak of the NBER (Q4 2019), which occurred before the pandemic began. Indeed, equipment investment is higher than 2019Q3.
Why do we observe this, even though the economy seems to be booming in the fourth quarter of 2019? Recalling that fixed investment is a forward-looking variable, we know that it is sensitive to expectations and uncertainties. As pointed out elsewhere, From experience, investment seems to be very sensitive to policy uncertainty (Also take a look here), and other economic uncertainties.
figure 2: The ratio of total actual equipment investment to GDP (blue, left scale) and the ratio of actual non-residential investment to GDP (blue-green, left scale), SA and trade policy uncertainty (red, right scale) Annualized q/q growth rate. The NBER decline date is shaded in gray. The orange dotted line in 2018Q1 is the announcement of Act 301; the green dotted line in the first quarter of 2020 is used to implement public health measures. Source: BEA 2021Q3 advance release, policyuncertainty.com, NBER and author’s calculations.
As trade policy uncertainty soars, investment growth has shown negative growth. By the way, although the ratio of non-residential investment to GDP seems high, it is important to remember that this is the total investment reported.this Net investment declined even more in 2019, starting from an already low level, And considering the trend toward faster equipment depreciation, the net investment in GDP may seem to be much lower.
This makes me wonder-if we hadn’t had a Covid-19 pandemic strike-whether we would still experience a recession. after all, In the past three-quarters of a century, the spread of 10 years to 3 months has been a very reliable precursor of economic recession.
