A Primer on This Month's GDP

WASHINGTON, DC-The nation appears to be taking in stride the latest GDP figures well, considering what some might say is a lackluster rate of growth for Q2. More to the point, we appear to have absorbed the new way the government will be calculating GDP and, in a related move, the national savings rate, with admirable aplomb. It's a whole new way, in short, to be thinking about what constitutes growth and savings.

To be sure, this switch has economists in a happy tizzy—but what does all this mean to the commercial real estate industry? Well, nothing directly. But it is one more piece for prognosticators to consider as they try to make sense of where real estate is headed. Let's start at the beginning: This week the Commerce Department reported that real GDP increased at an annual rate of 1.7% in the second quarter of 2013, compared to the previous quarter. This is a preliminary estimate based on source data that are incomplete or subject to further revision. The "second" estimate for the second quarter, based on more complete data, will be released on August 29.

A rate of 1.7% is, depending on who you ask, either sluggish or better than expected (economists had been anticipating a lower rate) or both.

The components of the growth rate, however, do bode well for the commercial real estate industry. Investments, led by residential construction, accounted for 1.3 percentage points of growth. Personal consumer spending (think retail sales) grew at 1.8% from the first quarter, for 1.2 percentage points of total growth.

These advances, however, were offset by a "negative contribution from federal spending" – a topic worthy of its own article – and imports, which subtract from GDP and which increased. (Exports increased as well, which of course is a plus for industrial).

Specifically:

• Real personal consumption expenditures increased 1.8% in the second quarter, compared with an increase of 2.3% in the first. Durable goods increased 6.5%, compared with an increase of 5.8 percent. Nondurable goods increased 2%, compared with an increase of 2.7%. Services increased 0.9%, compared with an increase of 1.5%.

• Real nonresidential fixed investment increased 4.6% in the second quarter, in contrast to a decrease of 4.6% in the first. Nonresidential structures increased 6.8%, in contrast to a decrease of 25.7%. Equipment increased 4.1%, compared with an increase of 1.6%. Real residential fixed investment increased 13.4%, compared with an increase of 12.5%.

• Real federal government consumption expenditures and gross investment decreased 1.5% in the second quarter, compared with a decrease of 8.4% in the first. National defense decreased 0.5%, compared with a decrease of 11.2%. Nondefense decreased 3.2%, compared with a decrease of 3.6%. Real state and local government consumption expenditures and gross investment increased 0.3%, in contrast to a decrease of 1.3%.

This month also introduced a change in the way GDP will be calculated going forward.

The Commerce Department will now include research and development spending and money spent on the arts—a category that include the burgeoning digital media sector. Some estimates say the change will add about $400 billion a year to the economy.

As part of the same changes, Commerce has revamped the way it counts certain pension obligations. Without belaboring the numbers, some analysts have concluded that the changes raise the savings rate and make it appear Americans are better prepared for retirement than they really are.

The CRE industry has many metrics by which to judge the recovery, some specific to the sector and some, like GDP, more macro-oriented. As they track these metrics it is equally as important to track the factors that go into calculating them.