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Key Economic Indicator Dips08-03-15 | News

Key Economic Indicator Dips
Nonresidential Investment Falls Slightly

Capital expenditures by the business sector dropped 0.6 percent in the second quarter, after it increased by more than one percent in the first quarter.

Businesses spent less on capital expenditures in the second quarter, a sign that the strength of the economic recovery in the first half of 2015 might be slowing.

A key subcategory of real gross domestic product, nonresidential fixed investment, fell slightly in the second quarter by O.6 percent.

The drop comes after capital expenditures by the business sector grew 1.6 percent in the first quarter. This figure had been revised upward from -3.4 percent, the Bureau of Economic Analysis (BEA), which compiles all GDP reports, notes.

Gross private domestic investment is an important component of gross domestic product. Subcategories of gross private domestic investment include nonresidential and residential fixed investment.

Fixed investment is considered critical in order for economic expansion to occur, both short-term and over the long run. Fixed investment is higher when the economy expands, and is lower when the economy contracts.

Nonresidential fixed investment is defined as business sector capital expenditures for commercial real estate, machinery, tools and other durable goods that later become its productive resources.

Structures typically constitute about one-fourth of nonresidential fixed investment, while equipment and durable goods make up the other three-fourths.

"In the first half of 2015, both the broader economy and nonresidential investment lost the momentum they had coming into the year," Anirban Basu, chief economist for the Associated Builders and Contractors, said.

"Rather than indicating renewed progress in terms of achieving a more robust recovery, today's GDP release indicates that a variety of factors helped to stall investment in nonresidential structures," Basu said.

The overall national GDP jumped 2.3 percent in the second quarter, after it climbed 0.6 percent in the first quarter.