Fourth Quarter 2010 GDP: Nonresidential Fixed Investment Ends Higher

"Unfortunately, real estate, residential and nonresidential construction have been the last segments of the economy to rebound." —ABC Chief Economist Anirban Basu.

A measure that the nation’s commercial construction industry continues to climb out of the recession, nonresidential fixed investment increased 4.4 percent in the fourth quarter of 2010 following a 10 percent increase in the third quarter, according to the January 28 gross domestic product (GDP) report by the U.S. Commerce Department. For the year, nonresidential fixed investment was up 5.5 percent, following a 17.1 percent drop in 2009.

Nonresidential fixed investment in structures inched up 0.8 percent in the fourth quarter compared to a revised 3.5 percent decrease in the third. Investment in structures was down 14.1 percent for the year, following a 20.4 percent decrease in 2009. Investment in equipment and software increased by 5.8 percent in the fourth quarter after jumping 24.8 percent and 15.8 percent in the second and third quarters, respectively. In 2010, investment in equipment and software was up 15.1 percent, in contrast to a 15.3 percent drop in 2009.

Residential fixed investment increased 3.4 percent in the fourth quarter, marking the first increase since the third quarter of 2009. Exports were up 8.5 percent for the quarter as exports of goods were up 10.0 percent and exports of services were up 5.1 percent. Total imports fell 13.6 percent as imports of services fell 15.5 percent and services were down 3.8 percent.

Personal consumption expenditures grew 4.4 percent in the fourth quarter as expenditures in goods jumped 10.1 percent and expenditures of services increased 1.7 percent. Change in private inventories took away 3.7 percentage points from real GDP in the fourth quarter as private businesses added $7.2 billion to inventories. Final sales – GDP less change in private inventories – shot up 7.1 percent in the fourth quarter – the largest increase since the second quarter of 1984.

Federal government spending decreased for the first time since the first quarter of 2009, down 0.2 percent in the fourth quarter of 2010, as defense spending fell 2 percent. However, federal nondefense spending increased 3.7 percent in the fourth quarter. State and local government spending decreased 0.9 percent in the fourth quarter, following a 0.7 percent increase in the third.

Gross domestic purchases, those purchases by U.S. residents of goods and services wherever produced, decreased 0.3 percent in the fourth quarter following a 4.2 percent increase in the third quarter. Overall, real GDP increased 3.2 percent in the fourth quarter, the sixth straight month of expansion. In 2010, GDP expanded 2.9 percent, the largest annual increase since 2005, when the economy expanded 3.1 percent.

“As predicted, the fourth quarter GDP data reflects a general acceleration in economic momentum late last year,” said Associated Builders and Contractors Chief Economist Anirban Basu. “Moreover, economic growth has become increasingly broad-based, fueled by a combination of consumer spending, exports, and business investment. In the long-term, this should mean good things for virtually all construction segments.

“Unfortunately, real estate, residential and nonresidential construction have been the last segments of the economy to rebound. While spending on nonresidential structures was up during the fourth quarter, it is only relative to the unusually low levels of activity in previous quarters,” said Basu. “This is true for a number of reasons, including the fact that many of the nation’s most significant economic excesses during the previous growth cycle were concentrated in real estate, with those excesses often translating into expected levels of construction.

“Meanwhile, commercial real estate continues to be generally associated with high vacancy rates and a lack of demand for new construction. Additionally, there is evidence that credit conditions remain strict, particularly in real estate-related segments,” Basu said.

“Another interesting aspect of the fourth quarter gross domestic product report was the slowdown in federal, state, and local government spending. While many may cheer the emergence of greater fiscal discipline in various levels of government, construction volumes in publicly financed segments may be suppressed going forward as governments slow the growth of, or shrink, both operating and capital budgets,” said Basu.

To view the previous GDP report, click HERE.