Tuesday, March 04, 2008
This is a follow-on to Friday's post on fourth quarter GDP where an anemic 0.6 annualized growth rate was reported. The chart below breaks out the private domestic investment component of GDP which accounts for roughly 17 percent of all economic activity.
While, in time, it will likely be proven that personal consumption in the U.S. (accounting for about 70 percent of GDP) was the biggest and baddest bubble of them all, spanning decades and ultimately leading to all sorts of life-changing developments, in the chart above you can clearly see the last two smaller bubbles as they peaked and popped.
Going back about a decade and working from left to right in the chart, you can see the parade of bubbles.
The big red bars above the zero axis in 1998 and 1999 are the last of the routers and fiber optic cables being purchased and installed. Then, when the red bars fall into negative territory and proceed to grow there, that's when all the dot-com jobs were slashed and investors started picking up the pieces left behind by their tech stocks.
Similarly, the expanding green bars above the zero axis from 2002 to 2005 indicate the more recent housing bubble and, now that the green bars are below the zero axis, jobs are being lost once again as prices plunge for another asset class - residential real estate.
The commercial property market, as indicated by the blue bars far to the right, is probably the next bubble that will meet its pin.
If you are wondering what will expand above the zero axis next, you are not alone.
In the near term, government spending (a separate category within the GDP data) would be a good guess.