Tuesday, August 27, 2013

A Barometer of Growth

A search for PFI at FRED turned up plenty of results but only one containing the word "investment":

Purchasing Power Parity Converted GDP Per Capita (Laspeyres), derived from growth rates of Consumption, Government Consumption, Investment for Finland

I didn't go there.

That search also turned up one result containing the word "private":

Nonfarm Private Financial Activities Payroll Employment

I didn't go there.

It turned up no result containing the word "fixed".

A search for FPI at FRED brings you immediately to the Fixed Private Investment graph. There, the notes tell us
BEA Account Code: A007RC1

A Guide to the National Income and Product Accounts of the United States (NIPA) -

At the nipaguid PDF -- a name that satisfies the 8-character limit of MS-DOS file names, in case you haven't yet upgraded -- we find the phrase private fixed investment on page 5 and in a table on page 7, and on page 14:

Gross domestic investment (6-1) measures the total investment in the United States in fixed assets (that is, the structures, equipment, and software that are used in production) and in inventories (change in private inventories). It is the sum of private fixed investment (see 1-20), government fixed investment (see 1-29), and change in private inventories (1-25).

I quit looking for PFI at that point. I like that definition. It reminds me of something I once knew: that change-in-inventory counts as part of investment. That's an important bit of trivia which explains the "S=I" thing people are always talking about. Not relevant to this post, but worth remembering, certainly.

There were no occurrences in the nipaguid of the phrase "fixed private investment".

So what FRED calls FPI and what BEA calls PFI are the same thing. I can talk of Fixed Private Investment and Private Fixed Investment interchangeably, with impunity.

Good. Because in a different PDF from BEA -- or actually in Chapter 6 of what looks like the same nipaguid, but in a different file -- we find this:

Private fixed investment (PFI) measures spending by private businesses, nonprofit institutions, and households on fixed assets in the U.S. economy. Fixed assets consist of structures, equipment, and software that are used in the production of goods and services. PFI encompasses the creation of new productive assets, the improvement of existing assets, and the replacement of worn out or obsolete assets.

The PFI estimates serve as an indicator of the willingness of private businesses and nonprofit institutions to expand their production capacity and as an indicator of the demand for housing. Thus, movements in PFI serve as a barometer of confidence in, and support for, future economic growth.

A barometer of growth. (I said that yesterday.)

(Neither of those PDFs plays nicely with CTRL-C cut and CTRL-V paste operations.)

This post resolves two issues. First, that PFI and FPI are two names for the same thing. Second, what is measured by FRED's FPI.


jim said...

"Thus, movements in PFI serve as a barometer of confidence in, and support for, future economic growth."

If I'm deciphering that quote correctly it implies that the changes in FPI are predictive of where the economy is going in the future.

Looking back at the last 60 years I don't see why anyone would think that is true.


It looks to me like movements in FPI are not any better indications of future growth (or lack of growth) than are movements in GDP itself. Maybe the data for FPI can be had earlier.

Jazzbumpa said...

jim -

Maybe a way to get at it is to do a scattergraph FPI and GDP for different time lags from 0 to a few quarters.

I redid the graph as quarterly rather than semi-annual.


it's busy as hell, but i think you need a finer cut to sort out predictive value.

Then again, it might just be a mash-up.


Jazzbumpa said...

Is there a way to back housing investment out of FPI?

Just looking at the industrial part might be valuable.


The Arthurian said...

Jazz, maybe Private Residential Fixed Investment (PRFI) ?

Jazzbumpa said...

Art -

Yeah, that ought to do it.


Jazzbumpa said...

Despite the choppiness, PRFI/FPI was steadily declining until the housing bubble.



The Arthurian said...

Interesting graph, Jazz. But don't they say housing is the main thing that boosts the economy? At first glance...

At second glance, the "choppyness" looks to be the boost they are talking about.

Waning, waning, waning. No remarkable change around 1980 on that graph. huh.

Oh, but look at percent change in private nonresidential fixed investment. There seems to be a "great moderation" there:


Jazzbumpa said...

Hmmmmm -



Jazzbumpa said...

But don't they say housing is the main thing that boosts the economy?

No. Consumer spending is about 70% of GDP.


The Arthurian said...

THAT is one GREAT graph. I'll have to look at it for a week or more before I see it, probably.

I'll get back to you on the importance-of-housing thing... if I can find the reference.