Wednesday, August 25, 2010

Where's the Investment?

Traveling again today, so this is all you'll get until later this evening / tomorrow from EconomPic....

In response to my post on the breakdown of GDP by decade, reader DIY Investor comments:

It would be interesting if the investment portion could be broken out between housing and other and be done on an annual basis for the 00s. There may be some pent up demand building on the part of business investment which could bode well for the stock market. My best guess is that the numbers are dominated by the housing crisis.

At least that's my take.
The chart of investment, both nonresidential (structures and equipment / software) and residential below....

Some results that I found interesting:
  • The residential boom doesn't look so large as compared to previous cycles, though the collapse is rather epic (and will only get worse)
  • Investment in structures has been flat going on 20+ years (outsourcing?)
  • After the (telecom) investment bubble in the late 90's / early 00's, equipment and software investment is at a 50 year low (the potential that there is pent up demand for new investment)
The result... a huge lack of investment. As EconomPic has detailed before, this was a partial cause in the jump in profits over the past decade (less investment temporarily increases the bottom line) and now growth is slowing (innovation helps increase the top line / economy).

Source: BEA


  1. I think it's mostly in China and Germany.

  2. My reading of the chart is that investment has been driven by two long-term/structural factors. One is technology, which seems to drive the boom of 1995-2002 in equipment and software. The other is globalization (relocating factories to China), which seems to account for the low in structure investment in the past 15 years. The low structure investment is also matched by the decline in manufacturing employment in the same period.

    Looking forward, the momentum of globalization may have come to a stop. However, factories are coming back any time soon. In other words, structure investment is not likely to rebound. The unknown card is technology, which may drive the next wave of business investment. But nothing solid seem to be in sight for the next wave of technological revolution.