Residential investment growth set to slow

We expect GDP growth to accelerate over the next few quarters as the Federal fiscal tightening begins to ease although, at the same time, it looks like the economic recovery will receive less support from the rebounding housing sector. The growth rate of residential investment in permanent structures has been running at a massive 30% annualised pace since the second half of 2011, but the more recent levelling out in new housing starts suggests residential investment may stagnate or even contract in the third quarter. Thankfully, since new home building still accounts for only 2% of GDP, this won't threaten the wider economic recovery. Moreover, the survey evidence from homebuilders still suggests that housing starts and residential investment will resume their upward trends later this year and continue to expand in 2014.