Category Archives: GDP

Why Residential Construction Will Not Have a Material Impact on Growth

Why Residential Construction Will Not Have a Material Impact on Growth


By Walter Kurtz, Sober Look

Some are expecting the latest surge in US home construction to lift economic growth. Even though it is indeed a positive development, construction however will have only a limited contribution to the GDP.

Home construction in the US has indeed been on the rise due to tight housing inventories (see discussion), particularly in neighborhoods where people actually want to live. Here are a couple of examples:

1. Star-Telegram: – New home construction in Dallas-Fort Worth jumped 34.5 percent in the third quarter compared with a year ago, the fifth straight quarter of gains and the best since the second quarter of 2010, Residential Strategies said Thursday.

2. WRAL: – Wake County’s slowly improving housing market got more good news recently, as the National Association of Home Builders predicted that home building could be back to normal by the end of 2013. Home construction is up 27 percent compared with this time last year, despite only 1,500 new homes being on the market in the county.

But unfortunately just as single family home construction momentum picked up, multifamily construction has slowed – offsetting some of the gains.

Source: JPMorgan

But even if the total residential construction spending accelerates, right now it unfortunately accounts for only about 1% of US GDP. So as much everyone wants to see construction drive GDP (as it did to some extent during the boom years), it is still a fairly insignificant contributor to the overall output.

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A Pickup for Housing in 2012?

A Pickup for Housing in 2012?

by CalculatedRisk on 12/28/2011  

Residential investment made a small positive contribution to GDP in 2011, for the first time since 2005. And construction employment turned slightly positive in 2011.

Now the question is what will happen in 2012? I think some pickup is likely, but I’m not as optimistic as some other people …

From the WSJ: Hedge Funds See Rebirth for U.S. Housing

Hedge funds run by Caxton Associates LP, SAC Capital Advisors LP, Avenue Capital and Blackstone Group LP have been buying housing-related investments, betting on a rebound. And formerly bearish research firm Zelman & Associates now predicts a housing pickup, as does Goldman Sachs Group Inc.

Even some housing skeptics acknowledge that real estate may no longer be the drag it has been on the economy. … “I’m sold that it’s a bottom,” says James Bianco, who runs Bianco Research, in Chicago. “It’s gone from a negative to a nothing for the economy,” …

Ivy Zelman [predicts] that rising rents will push would-be buyers to purchase homes. A housing recovery isn’t “happening as fast as everyone would like,” she says. But there are “a lot of pillars in place to give us some optimism.”

Of course there are still housing bears:

“The smartest money in the world has been carried out on stretchers betting on a true recovery for housing,” says Mark Hanson

I think we will probably see some increase in new home sales in 2012, but it will be from a very low level (around 300 thousand new homes will be sold in 2011, a record low since the Census Bureau started tracking new home sales in 1963). I’ll have more on housing and residential investment soon.

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GDP by Metropolitan Area, Advance 2010, and Revised 2007–2009


BEA 11—45


Advance 2010, and Revised 2007–2009 GDP-by-Metropolitan-Area Statistics

Real U.S. GDP by metropolitan area increased 2.5 percent in 2010 after declining 2.5 percent in 2009, according to new statistics released today by the U.S. Bureau of Economic Analysis.1 The economic growth was widespread as real GDP increased in 304 of 366 (83 percent) metropolitan areas, led by national growth in durable-goods manufacturing, trade, and financial activities.

Percent change in real GDP by metro area, 2009-2010

Of the ten largest metropolitan areas, the three with the fastest real GDP growth in 2010 were Boston-Cambridge-Quincy, MA-NH (4.8 percent), New York-Northern New Jersey-Long Island, NY-NJ-PA (4.7 percent), and Washington-Arlington-Alexandria, DC-VA-MD-WV (3.6 percent).2 The ten largest metropolitan areas, accounting for 38 percent of U.S. metropolitan area GDP, averaged 2.5 percent growth in 2010 after falling 2.2 percent in 2009.

Durable-goods manufacturing led the resurgence in U.S. real GDP by metropolitan area in 2010. In Durham-Chapel Hill, NC and Palm Bay-Melbourne-Titusville, FL, the industry contributed more than 3.0 percentage points to each area’s overall real GDP growth of 6.6 percent and 4.7 percent, respectively.

Strong contributions from durable-goods manufacturing fueled growth in many small metropolitan areas where production of these goods constitutes a large portion of the area’s economy.3 This is especially true in the Great Lakes region where durable-goods manufacturing contributed 11.4 percentage points to growth in Elkhart-Goshen, IN and more than 6.0 percentage points to growth in Columbus, IN and Kokomo, IN. Elkhart-Goshen, IN and Columbus, IN were two of the fastest growing metropolitan areas in 2010, with overall real GDP growth of 13.0 percent and 10.1 percent, respectively.

In 2010, growth in trade (wholesale and retail) positively affected many metropolitan areas. Metropolitan areas in the Plains and Mideast regions were affected most—growth in trade continued in Elmira, NY; Williamsport, PA; Lebanon, PA; and Mankato-North Mankato, MN. Growth in trade was strong in Florence-Muscle Shoals, AL; Cape Girardeau-Jackson, MO-IL; and in Midland, TX, where the trade sector turned sharply upward in 2010. In Elmira, NY and Florence-Muscle Shoals, AL, trade added more than two percentage points to real GDP growth in 2010.

The effects of the growth in financial activities were more widespread than other industries in 2010. In Houma-Bayou Cane-Thibodaux, LA; Des Moines-West Des Moines, IA; Hartford-West Hartford-East Hartford, CT; and New York-Northern New Jersey-Long Island, NY-NJ-PA financial activities contributed more than two percentage points to real GDP growth. All of these metropolitan areas grew faster than the national average.

In contrast to most industries, construction continued to detract from growth in 2010. In Las Vegas-Paradise, NV and Steubenville-Weirton, OH-WV, real GDP contracted due to strong concentrations in the construction industry. In Las Vegas-Paradise, NV, real GDP in the construction industry continued to decline by more than twenty percent and sank below its 2001 level.

Tables 1-3 [XLS] show these results in more detail; complete detail is available on BEA’s Web site at

Advance Statistics of GDP by Metropolitan Area for 2010 by NAICS Sector

The advance statistics of GDP by metropolitan area for 2010 are based on a more limited set of source data and an abbreviated estimation methodology compared with the standard set of data and the estimation methodology used to prepare the revised statistics for 2007—2009. The advance GDP-by-metropolitan-area statistics are based primarily on preliminary earnings-by-industry data from BEA’s regional economic accounts, released August 9, 2011.

More information on the methodology used to produce the advance 2010 statistics, on the revised GDP-by-metropolitan-area statistics for 2007—2009, and on revisions to the GDP-by-metropolitan-area statistics will appear in an article in the October 2011 issue of the Survey of Current Business, BEA’s monthly journal.

Explanatory Notes

Definitions. GDP by metropolitan area is the sub-state counterpart of the Nation’s gross domestic product (GDP), the Bureau’s featured and most comprehensive measure of U.S. economic activity. GDP by metropolitan area is derived as the sum of the GDP originating in all the industries in the metropolitan area.

The statistics of real GDP by metropolitan area are prepared in chained (2005) dollars. Real GDP by metropolitan area is an inflation-adjusted measure of each area’s gross product that is based on national prices for the goods and services produced within the metropolitan area. The statistics of real GDP by metropolitan area and of quantity indexes with a base year of 2005 were derived by applying national chain-type price indexes to the current-dollar GDP-by-metropolitan-area values for the 61 detailed NAICS-based industries.

The chain-type index formula that is used in the national accounts is then used to calculate the values of total real GDP by metropolitan area and of real GDP by metropolitan area at more aggregated industry levels. Real GDP by metropolitan area may reflect a substantial volume of output that is sold to other areas and countries. To the extent that a metropolitan area’s output is produced and sold in national markets at relatively uniform prices (or sold locally at national prices), real GDP by metropolitan area captures the differences across metropolitan areas that reflect the relative differences in the mix of goods and services that the areas produce. However, real GDP by metropolitan area does not capture geographic differences in the prices of goods and services that are produced and sold locally.

Relation of GDP by metropolitan area real growth rates to national GDP. The U.S. metropolitan area growth rates of real GDP may differ from national real GDP growth rates released in the July 2011 annual revision of the national income and product accounts (NIPAs). In addition, the U.S. metropolitan area real GDP growth may differ from the U.S. GDP by state growth released June 7, 2011 due to the exclusion of non-metropolitan areas. Differences with the national growth in real GDP are primarily due to the direct linkage and consistency of GDP-by-metropolitan-area statistics with the most recently released statistics of GDP by state and the Annual Industry Accounts’ GDP by industry. The GDP-by-industry statistics released April 26, 2011 and the GDP-by-state statistics released June 7, 2011 are based upon the annual revision of the NIPAs released in July 2010, and have not yet incorporated revisions to national GDP released in July 2011.

Metropolitan (statistical) areas. The metropolitan (statistical) areas used by BEA for its entire series of GDP statistics are the county-based definitions developed by the Office of Management and Budget (OMB) for federal statistical purposes and last updated in December 2009. OMB’s general concept of a metropolitan area is that of a geographic area consisting of a large population nucleus together with adjacent communities having a high degree of economic and social integration with the nucleus.

The statistics of GDP by metropolitan area in current and real (chained) dollars are available from the Regional Economic Accounts page of the BEA Web site at

BEA’s national, international, regional, and industry statistics; the Survey of Current Business; and BEA news releases are available without charge on BEA’s Web site at By visiting the site, you can also subscribe to receive free e-mail summaries of BEA releases and announcements.


1. The growth rates may differ from the national rates of GDP growth. See the “Explanatory Notes” for a detailed description.

2. The ten largest metropolitan areas, as measured by 2010 real GDP, are: New York-Northern New Jersey-Long Island, NY-NJ-PA; Los Angeles-Long Beach-Santa Ana, CA; Chicago-Joliet-Naperville, IL-IN-WI; Washington-Arlington-Alexandria, DC-VA-MD-WV; Houston-Sugar Land-Baytown, TX; Dallas-Fort Worth-Arlington, TX; Philadelphia-Camden-Wilmington, PA-NJ-DE-MD; San Francisco-Oakland-Fremont, CA; Boston-Cambridge-Quincy, MA-NH; and Atlanta-Sandy Springs-Marietta, GA.

3. Small metropolitan areas are those with real GDP of less than $10 billion.

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Inventory Cycle and GDP

Inventory Cycle and GDP

by CalculatedRisk on 2/12/2010 11:51:00 AM

In Q4 2009 a majority of the increase in GDP was due to changes in private inventories. That can be a little confusing …

First, GDP is Gross Domestic Production. What is being estimated is “domestic production”, but what is being measured is mostly domestic consumption.

Right away we can see that if something is produced domestically and then exported, it will not show up in domestic sales. So exports are added to the equation, and imports subtracted. Investment and Government spending are also added to measures of consumption, and we frequently see an equation like this for GDP:

Y = C + I + G + NX
C: Consumption
I: Investment
G: Government spending
NX: Exports – imports.

But what about changes in inventories? The same ideas apply. What is measured are sales and changes in inventory, and then production is calculated:

Production = Sales + Changes in Inventory
The following simple table shows how this works, and how it impacts GDP.

Sales Production Inventory I/S GDP
Q1 100 100 100 1.00
Q2 101 101 100 0.99 4.1%
Q3 102 102 100 0.98 4.0%
Q4 103 103 100 0.97 4.0%
Q5 100 104 104 1.04 3.9%
Q6 97 100 107 1.10 -14.5%
Q7 97 96 106 1.09 -15.1%
Q8 98 93 101 1.03 -11.9%
Q9 99 98 100 1.01 23.3%
Q10 100 100 100 1.00 8.4%

The first four quarters just show normal growth. Sales increase by one unit each quarter, and since inventory is steady, production increases with sales. This gives annualized GDP growth of 4%, and a slightly declining inventory-to-sales ratio (assuming inventory stay at the same level).

Now look at Q5. Sales suddenly drop, but production still increases since the decline in sales was a surprise. This pushes up inventories. Production is measured from sales (100) plus increase in inventory (+4) and GDP still increases.

Now in Q6 sales fall further to 97. The company reacts to the decline in sales and only produces 100 widgets. Inventory still increases (+3), but the combination of sales and inventory changes in Q6 is less than in Q5, so GDP declines sharply (marked in red).

In Q7 sales have bottomed, but the company is still cutting back on producton because they have too much inventory. For Q7, Production = Sales (97) plus changes in inventory (-1) giving production of 96 widgets. That is sharply below the 100 widget production of the prior quarter, so even though sales have bottomed, GDP declines sharply.

In Q8 sales increase slightly, but the company still has too much inventory, and they cut production further – resulting in a decline in GDP.

Finally in Q9, sales increase again by one unit, and the company can now increase production almost to the level of sales. Inventory is still declining (production is less than sales), but production has increased sharply compared to Q8. This shows up as a surge in GDP of 23% in this example.

Remember production in Q9 was calculated from sales and changes in inventory. Production of 98 widgets = Sales of 99 widgets, minus 1 unit for decline in inventory. The increase in production from 93 units in Q8 to 98 unites in Q9 is what shows up in the GDP report.

By Q10 sales and production are pretty much back in equilibrium, but at a lower level than the peak. Now further increases in production depend on increases in sales.
And that brings us to the Manufacturing and Trade Inventories and Sales report from the Census Bureau today that showed inventories declined slightly in December (seasonally adjusted).

The Census Bureau reported:

Inventories. Manufacturers’ and trade inventories, adjusted for seasonal variations but not for price changes, were estimated at an end-of-month level of $1,310.7 billion, down 0.2 percent (±0.1%) from November 2009 and down 9.7 percent (±0.4%) from December 2008.

Inventories/Sales Ratio. The total business inventories/sales ratio based on seasonally adjusted data at the end of December was 1.26. The December 2008 ratio was 1.46.

This report suggests that inventories are back in line with sales, and the inventory cycle is mostly over (there will probably still be a positive contribution in Q1 2010 from changes in private inventories). Further increases in production will now depend on increases in consumption (or exports).

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