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29 June 2010


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John Ross

On the question by Giles Chance in his comment, Figure 3 does not separate commercial real estate from overall US private fixed investment - it is the total decline in private investment.
However using chained 2005 dollars, the total decline in US private investment was $420 billion, the decline in non-residential structures was $146 billion and the decline in residential structures $110 billion. The total decline in investment in structure was $264 billion - the sum of the components differs slightly from the total as these are chained dollars.
As examination of the difference between the total and the components is not huge, as with other parts of investment, and sharp changes in relative prices have therefore not taken place, it is reasonable to say that approximately 63% of the decline in US fixed investment is due to decline in investment in structures of which approximately 26% is due to the decline in investment in residential structure and 35% to the decline in investment in non-residential structure - again there is a (slight) disparity between components and total due to the fact chained dollars are being used.
These figures confirm Giles Chance's point that the biggest element by far in the decline in US fixed investment is in real estate of which the largest part is in non-residential real estate.
(Data calculated from US Bureau of Economic Analysis NIPA Table 5.3.6)

Giles Chance

Interesting, valuable analysis. I believe in order to judge the potential for a GDP bounce-back resulting from a reversal in weak corporate investment, one should separate out the private real estate effect from the overall fixed investment impact. Breaking out private residential investment in the European numbers is important, and in the cases particularly of Spain and the UK would probably show that the decline in property speculation has been a major part of the downturn. Included in fixed investment is also commercial property investment, which of curse has been an even larger component of the boom and bust- does your US breakdown in figure 3 separate commercial real estate out from the overall private fixed investment number ? COMMENT FROM Giles Chance, visiting professor at Guanghua School, Peking University, and author of 'China and the Credit Crisis: the emergence of a new world order' published by John Wiley 2009.

Phil Hand

Thank you for this. I wish our commentariat had known this much earlier! Evidence-based economics has been in short supply these few years.

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John Ross

  • Is Senior Fellow at Chongyang Institute for Financial Studies, Renmin University of China

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