Comments (20)

• matth

  Is this chart in constant dollars?

  Published: June 8, 2009 8:59 AM

• bob

  matth, no. adjusting for inflation would make it look even worse - REALLY bad in 2-4 years.

  Published: June 8, 2009 9:57 AM

• Ben Ranson

  I regard this as yet another not particularly useful aggregate statistic. There is no non-arbitrary way to measure "Gross Private Domestic Investment."

  The folly of aggregate statistics has been well known to economists for a long time. This particular statistic is contrived propaganda which, by chance, makes the government which created it look bad. It proves nothing.

  "Gross Private Domestic Investment" has no physical property which can be equal to 1,600 billion dollars. Nor does any principle of economics justify its valuation at this amount.

  Published: June 8, 2009 10:00 AM

• Joe O.

  I've got to agree with Mr. Tucker. According to the chart the 83 recession and the dot com bubble bursting weren't even close to the severity of what is occurring now. I'd say a lot of investors are losing confidence in the federal reserve and moving overseas.

  Published: June 8, 2009 10:04 AM

• gilad

  could someone elaborate a bit on this series? what exactly is it measuring?
  thanks.

  Published: June 8, 2009 10:06 AM

• Sukrit

  Well put, Ben Ranson.

  Published: June 8, 2009 10:07 AM

• fundamentalist

  Here is the BEA's explanation:

  Gross private domestic investment (1–19) consists of fixed investment (1–20) and the change in private inventories (1–25). Fixed investment consists of both nonresidential (1–21) fixed investment and residential (1–24) fixed investment. It is measured without a deduction for CFC [consumption of fixed capital] and includes replacements and additions to the capital stock. It covers all investment in fixed assets by private businesses and by nonprofit institutions in the U.S., regardless of whether the fixed asset is owned by U.S. residents. (Purchases of the same types of equipment, software, and structures by government agencies are included in government gross investment.) It excludes investment by U.S. residents in other countries. Nonresidential fixed investment consists of both structures (1–22) and equipment and software (1–23).
  Nonresidential structures consists of new construction (including own-account production), improvements to existing structures, expenditures on new nonresidential mobile structures, brokers’ commissions on sales of structures, and net purchases of used structures by private business and by nonprofit institutions from government agencies.19 New nonresidential construction includes hotels and motels and mining exploration, shafts, and wells. Nonresidential structures also includes equipment considered to be an integral part of a structure, such as plumbing, heating, and electrical systems.
  Equipment and software consists of purchases by private business and by nonprofit institutions of new machinery, equipment, furniture, vehicles, and computer software used repeatedly, or continuously, in the processes of production for more than 1 year. Also included are dealers’ margins on sales of used equipment to business and to nonprofit institutions; net purchases of used equipment from government agencies, from persons, and from the rest of the world; and own-account production of computer software. For equipment that is purchased for both business and personal use (for example, motor vehicles), the personal-use portion is included in PCE.
  Residential fixed investment consists of all private residential structures and of residential equipment that is owned by landlords and rented to tenants. Residential structures consists of new construction of permanent-site single family and multifamily units, improvements (additions, alterations, and major structural replacements) to housing units, expenditures on manufactured homes, brokers’ commissions on the sale of residential property, and net purchases of used structures from government agencies. Residential structures includes some types of equipment that are built into the structure, such as heating and air conditioning equipment.
  Change in private inventories (1–25) is the change in the physical volume of inventories owned by private business, valued in average prices of the period. It differs from the change in the book value of inventories reported by most business; the difference is the inventory valuation adjustment (described above).
  

  Published: June 8, 2009 10:27 AM

• fundamentalist

  It looks like most of the drop consists of the decline in commercial and residential construction related to the housing and commercial real estate collapse.

  Published: June 8, 2009 10:31 AM

• Lucas M. Engelhardt

  Ben Ranson,

  The point is definitely well-made. It's not immediately clear that this number is actually measuring anything meaningful. But, it does suggest that something interesting may be happening if you look at the somewhat disaggregated components.

  Published: June 8, 2009 11:22 AM

• Sean W. Malone

  Thought I'd add my comments as I posted this to my Facebook:

  "Jeff Tucker is right that this isn't necessarily a useful statistic at all since - as he said - measurement of these types of things is entirely arbitrary (and also changes over time making it hard to get a legitimate metric)... HOWEVER... As a general concept, it certainly makes perfect sense.

  A side note though: If what you see in the chart from 2002-03 until last year was all a fake, government-induced bubble (which I definitely believe), then this chart would show that we're back to where we started... in the aggregate at least. Not a great metric overall, but an interesting thing to look at."

  
  I certainly agree that this chart doesn't "prove" much of anything - the idea that private investment would be falling off the cliff, so to speak, is pretty obvious either way isn't it? People are losing money across the board and the political/economic climate for investment in the US is steadily deteriorating. Why would anyone invest here anymore?

  Published: June 8, 2009 12:29 PM

• Walt D.

  This shows that we have returned to the levels before the dot com and real estate bubbles. Incidentally, do you have a chart of "Government Investment" as in
  
  GDP = C +I +G
  
  
  fundamentalist - what is the official definition of the G (government spending/investment) in the GDP?

  Published: June 8, 2009 1:10 PM

• Current

  The problem is that the value of capital goods is their net present value. That number must be calculated in comparison to the interest rate. Since the government manipulate the interest rate they also manipulate this figure significantly.

  The subject of aggregate capital accounting is fraught with problems. Often they ignore implicitly that long term interest is determined by time-preference.
  

  Published: June 8, 2009 1:13 PM

• DerekB

  to Sean W. Malone:

  I completely agree with the question - what are the benefits of investing in America anymore, and are there more efficient places that I can allocate my surplus capital? Of course!

  The thing about this chart, even without inflation adjustments, is that it only deals with overall AMOUNT of investment. It does not deal with the vast mis-allocation of that investment as a result of ongoing statist policies.

  I wonder what kind of a comparative pie chat that would make... And as a side note I am wondering if this is forming some kind of a head-and-shoulders pattern :)

  Published: June 8, 2009 1:17 PM

• fundamentalist

  Government consumption expenditures and gross investment
  (1–29), the measure of government sector final
  demand, consists of two major components: Current consumption expenditures by general government
  and gross investment by both general government
  and government enterprises. Consumption
  19. Own-account production refers to an asset produced by a business or government for its own use.
  A Guide to the NIPAs 9
  expenditures consists of the goods and services that are produced by general government, less sales to other sectors and own-account investment. As producers of nonmarket services, governments generally provide services to the general public without charge, for example,
  law enforcement services, national defense services,
  and elementary and secondary education. The value of government production, that is, government’s gross output, is measured by the cost of inputs: Compensation of employees, CFC (a partial measure of the services of government capital), and intermediate
  goods and services purchased.20 Therefore, government consumption expenditures is measured as the sum of these costs of production less sales by government
  of goods and services to other sectors (which are classified as PCE, if purchased by individuals, or as intermediate inputs, if purchased by businesses) and the value of software and construction that are produced
  by government for its own use (that is, own-account
  investment, which is classified as part of gross government investment). Gross investment consists of purchases of new structures and of equipment and software by both general government and government enterprises, net purchases of used structures and equipment, and own-account production of structures and of software. Government consumption expenditures
  and gross investment does not include current transactions of government enterprises, current transfer
  payments, interest payments, subsidies, or transactions
  in financial assets and in nonproduced assets such as land.

  These are from A Guide to the National Income and Product Accounts on the BEA web site.

  Published: June 8, 2009 1:21 PM

• AJ Witoslawski

  That is VERY scary. One thing I've noticed is that a fall in investment ALWAYS precedes busts and a rise in investment ALWAYS comes with recovery, something that is consistent with Austrian theory.

  This means we're in for bad times.

  Published: June 8, 2009 1:22 PM

• Lee

  Yeah this chart is pretty scary, but not a real shocker.

  Since I do a bit of investing myself, I keep hearing other investors say, "buy silver/gold now" and "short 10 year US treasuries" or "buy Chinese/foreign stocks."

  The dollar is going down the tubes, US companies are being strangled by the current administration, and private property rights are being encroached upon more and more every day. All bad news for the U.S. and all good reasons to invest money elsewhere.

  I'm personally invested in Canadian mining companies, a Chinese potash company. (Migao Corp, if anyone wants to know), and RYJUX (a mutual fund that shorts U.S. treasuries).

  I sometimes feel bad about betting against the U.S. (you know, because I live here and all, and have had numerous relatives take a bullet or two defending it), but really, I just don't want to get ripped off. I shouldn't HAVE to overseas, but the market has just gone completely nuts as of late.

  Anyways, that's my $0.02 as an investor.

  Published: June 8, 2009 3:12 PM

• 2nd Amendment

  People are investing less not only because they have less money, but also because of government taxes, regulations and roadblocks which makes it more risky and less interested to invest in America.

  Published: June 8, 2009 3:22 PM

• Thinker

  Not only that, but if you invest in a politically important but potentially unsound business, the government might swoop in a steal your entire investment (see GM stockholders).

  Published: June 8, 2009 3:31 PM

• Bruce Koerber

  The additional uncertainty created by ego-driven interventionism and the constraints on the flow of knowledge caused by ego-driven intervention make private investors suspicious and leary of the riskiness of investment in such an economy - an economy manipulated by economic terrorists.

  Published: June 8, 2009 4:22 PM

• fundamentalist

  Lee: "I sometimes feel bad about betting against the U.S."

  Don't feel bad. The best think for the US is for libertarianism to spread and the best thing for libertarianism is for libertarians to do well. Make as much money as you can wherever you can.

  Published: June 8, 2009 4:27 PM