US GDP Slips 0.2% in Q1, Housing’s Share Grows

A 6.5% increase in residential fixed investment could not overcome sliding exports and government spending

June 25, 2015

National Association of Home Builders (NAHB)

For the first quarter of 2015, housing services made up 12.3% of U.S. GDP, or an annual rate of $2 trillion, and residential fixed investment (RFI) rose to a $512 billion annual rate; 3.14% of the economy. Taken together, housing’s share of GDP was 15.45% for the start of the year.

The U.S. economy shrank by a seasonally adjusted annual rate of 0.2% over the first quarter of 2015.

Despite first quarter weakness, mortgage lenders believe that the U.S. economy is on the “right track.” In contrast, the sense of the general population is that the U.S. economy is on the “wrong track.”

The decline in this third and final Q1 GDP estimate of economic output reflected a 0.6% decline in government consumption, a 5.9% decrease in exports, and a 7.1% increase in imports. Imports subtract from GDP. The negative effect of these variables was partially offset by a 2.1% increase in personal consumption, and a 2.4% increase for private domestic investment.

Residential fixed investment, a component of gross private domestic investment, rose by a seasonally adjusted annual rate of 6.5%. Housing’s share of GDP rose to 15.45% of GDP at the start of the year, with home building and remodeling yielding 3.14 percentage points of that total.

Housing-related activities contribute to GDP in two basic ways:

Residential fixed investment (RFI) – RFI is the measure of the home building and remodeling contribution to GDP. It includes construction of new single-family and multifamily structures, residential remodeling, production of manufactured homes and brokers’ fees. For the first quarter, RFI was 3.14% of the economy. RFI reached a $512 billion annualized pace during the start of the year; its highest quarterly rate since mid-2008. First-quarter GDP would have declined 0.4% absent the RFI component.
Housing services – Housing services includes gross rents (including utilities) paid by renters, and owners’ imputed rent (an estimate of how much it would cost to rent owner-occupied units) and utility payments. For the first quarter, housing services was 12.3% of the economy or $2 trillion on an annualized basis.

Taken together, housing’s share of GDP was 15.45% for the start of the year.

Historically, RFI has averaged roughly 5% of GDP while housing services have averaged between 12% and 13%, for a combined 17% to 18% of GDP. These shares tend to vary over the business cycle.