Gross Private Investment

Think of it this way

It is what the household spends on renovations and buying tools: the first thing postponed when there are doubts.

What is Gross Private Investment?

What businesses devote to building future capacity —factories, machinery, software—, plus residential construction and the change in inventories. It is a small share of GDP compared with consumption.

How to read Gross Private Investment

It is the chart's jittery line. Although it weighs much less than consumption, it moves with a violence consumption does not have: it plunges in recessions and soars in expansions. Most of the year-to-year variation in GDP comes from here.

What Gross Private Investment means for the market

It is the component that anticipates. Businesses cut investment when they expect less demand or when financing becomes more expensive, and both things are known before consumption suffers. That is why its decline tends to precede a recession rather than accompany it.

Where the money flows

No money moves between accounts here: it is an accounting breakdown. GDP can be measured by what is produced, by what is earned or by what is spent, and this is the third path: who bought what the country produced. The four components are exactly that —households, businesses, government and the rest of the world— and they add up to the total with nothing left over. It matters for this section because it tells where the denominator of the series over GDP comes from: when GDP falls in a recession, it is almost always investment that collapses, not consumption, and that is worth knowing before interpreting a jump in debt to GDP.

What to watch in Gross Private Investment

Its volatility compared with consumption's. And look at it together with the 10-year bond: more expensive financing shows up here before anywhere else.

It does not measure liquidity: it is one of the four components that make up GDP.