Investment is Lagging

My thoughts: Regime uncertainty anyone?

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Robert Higgs makes an important point that "Consumption Spending HAS Already Recovered," and it's private investment spending that is lagging and holding the economy back:

Commentators and pundits, some of whom ought to know better, continue to harp on the idea that the recession persists because consumers are not spending. Every Keynesian seems to believe that because consumers are in a dreadful funk, only government stimulus spending can rescue the moribund economy, given (to them, at least) that investors will not spend more because the Fed, having already driven interest rates to extraordinarily low levels, cannot use conventional policies to drive them any lower and thereby elicit more investment spending.

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Investment Contributions 2Q 2010

For the following graph, red is residential, green is equipment and software, and blue is investment in non-residential structures. The usual pattern - both into and out of recessions is - red, green, blue...

The key leading sector - residential investment - has lagged the recovery because of the huge overhang of existing inventory. Usually RI is a strong contributor to GDP growth and employment in the early stages of a recovery, but not this time - and this is a key reason why the recovery has been sluggish so far.

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GDP: Gross Investment

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Gross Private Domestic Investment

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GDP: Gross Private Domestic Investment

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My thoughts: It is not just personal consumption expenditures that are down. Regime uncertainty.