by Decreases in residential investment are expected to slow in the 2nd and 3rd quarters
WASHINGTON — A recently released economic forecast from The Conference Board predicts a slightly improved environment for residential housing investment compared to last year, although it’s at a much slower pace than nonresidential investment.
The Conference Board, which publishes the monthly Consumer Confidence Index, defines residential investment as the total spending on residential housing units, including single-family homes plus multiunit buildings such as condominiums and townhomes. It also focuses on new construction as opposed to existing home sales.
In comparison, the board’s definition of nonresidential investment includes spending on new construction and improvements to new structures ranging from offices and manufacturing spaces to retail spaces. It also includes investments in new equipment to run those facilities.
The forecast estimates changes in spending by quarter and shows a 3% and 2% decline in first-quarter residential investment compared with a 13.7% gain and a 2.8% decline in the first and second quarters of 2024, respectively. For the third and fourth quarters, it shows a 1% decline compared with a 4.3% decline in the third quarter of last year. Meanwhile it estimates the last quarter will be flat compared with a 5.3% gain last year.
By comparison, investments in nonresidential projects are expected to grow, albeit at a slower pace than 2024. For example, it predicts 4.3% and 2.6% growth in the first and second quarters respectively compared with 4.5% and 3.9% growth the same periods last year. It predicts 2.9% and 3% growth in the third and fourth quarters, respectively compared with an increase of 4% and a decrease of 2.2% in the third and fourth quarters of last year.
In the first and second quarters, it predicts that consumer spending will rise 2.3% each quarter respectively, compared with a gain of 2% and 1.9% in the third and fourth quarters. This compares to increases of 1.9% and 2.8% in the first and second quarters of last year, and increases of 3.7% and 4.2% in the second half of 2024.
While the consumer spending segment is not broken down by categories such as home furnishings, the slower declines in residential investment during the second and third quarters indicates that there could be a boost in demand for furniture. How that materializes in the final quarter of this year depends on any number of factors including disposable income and unemployment, not to mention interest rate levels.
Here the forecast predicts a 2% increase in disposable income in the first and second quarters of this year respectively, compared with 5.6% and 1% increases in the first and second quarters of last year. In the third and fourth quarters of this year, it predicts a 1.7% increase respectively each quarter, compared with a 1.1% and 2.8% increase the same periods last year.
It predicts unemployment rates of 4.3% and 4.2% in the first and second quarters compared with a rate of 4.1% in the third and fourth quarters. This compares with 3.8% and 4% in the first and second quarters of last year and 4.2% in the third and four quarters of last year.
Inflation is another factor that will guide consumer spending, particularly relating to purchases that consumers historically have delayed such as furniture.
The forecast predicts a 2.4% and 2.2% increase in inflation in the first and second half, compared with a 2.2% and 2% increase in the third and fourth quarters respectively. Last year, the rates were 3% and 2.7% in the first and second half and 2.7% and 2.8% in both quarters in the second half.
“The unpredictability of the current administration’s policies looms large over the outlook,” the report noted. “While the US economy is set to start 2025 on strong footing after a year of surprisingly robust growth, a combination of proposed policies will likely weigh on growth and leave inflation elevated as the year progresses, resulting in a more patient policy stance from the Fed. The labor market strength supporting solid growth in personal income for consumers may contribute to the continuation of strong growth in H1.”
