"The decline in business investment is occurring during a period of robust federal spending, which implies that privately generated and privately financed activity remains subdued." —ABC Chief Economist Anirban Basu
Nonresidential fixed investment decreased 2.5 percent during the third quarter of 2009 compared to a 9.6 percent loss in the previous quarter, according to the U.S. Commerce Department’s October 29 gross domestic product (GDP) report. Contributing to the loss was investment in nonresidential structures, down 9.0 percent in the third quarter.
In contrast, investment in equipment and software increased 1.1 percent following a 4.9 percent decrease in the second quarter. Meanwhile, residential fixed investment jumped 23.4 percent in the third quarter of 2009, a flip from a 23.3 percent loss in the second quarter.
Consumer spending was up 3.4 percent in the third quarter, following a slight decrease of 0.9 percent in the previous quarter, as spending on durable goods spiked 22.3 percent. However, the increase was due in large part to brisk motor vehicle sales from the government’s Cash for Clunkers program. Both exports and imports also rose significantly at 14.7 percent and 16.4 percent, respectively.
Federal government spending increased 7.9 percent in the third quarter following an 11.4 percent gain in the second quarter. In contrast, state and local government spending fell 1.1 percent in the third quarter after increasing 3.9 percent in the second quarter.
Overall, real gross domestic product increased 3.5 percent after four straight quarters of negative growth.
What This Means
“This GDP report confirms what many economists have been saying for several months – the recession that began in 2007 is now over,” said Associated Builders and Contractors (ABC) Chief Economist Anirban Basu. “Perhaps the most welcomed statistic in the GDP data is the rebound in consumer spending, which is key to sustaining the economy’s momentum and ultimately to job creation.
“However, there remains plenty of room for concern,” said Basu. “Among the major components of the U.S. economy, the government continues to lead the way in terms of generating economic expansion.
“Moreover, nonresidential fixed investment continues to slump, an indication that the private sector is not yet fully participating in the recovery,” said Basu. “This decline in business investment is occurring during a period of robust federal spending, which implies that privately generated and privately financed activity remains subdued.
“Most ABC members will not find comfort in the economic data until nonresidential fixed investment begins to show signs of its own recovery,” said Basu.