Aggregate private investment

Nonresidential investment, or business investment, makes up most aggregate private investment. The actual proportion fluctuates between 60.0% and 80.0% in any given year based on volatile factors, like changes in interest rates and government policy. In turn, the bulk of business investment is composed of equipment and software, with the remainder accounted for by spending on structures used for commercial purposes such as buildings, power lines, mine shafts and wells. The residential portion of aggregate private investment refers to expenditure on new housing units, ranging between 38.0% and 64.0% of residential investment, with net purchases of used structures, improvements and brokers' commissions on the sale of residential structures accounting for most of the remainder.

Private fixed investment reached a new peak in 2006. The booming economy and ever-rising housing prices convinced Americans that any investment or home improvement would be recovered, most likely with a profit. Meanwhile, easy access to less expensive credit enabled these beliefs to be put into practice with a rapid increase in spending across all components of investment. Unfortunately, this rosy outlook began showing cracks in 2007, as concerns about financial institutions raised the possibility of a potential economic slide. The subsequent housing market collapse and soaring unemployment transformed these jitters into a full-fledged freefall in investment in 2009. This nosedive was partly attributable to individuals cutting back sharply on renovations, and houses being sold at steep losses compared to peak values seen just a few years before. Meanwhile, soaring unemployment forced consumers to rein in spending. This rippled through to businesses, which had to scale back plans for expansion and new developments for fear that they would be unable to recoup their costs.

The economic outlook improved starting in 2010, clearing the way for renewed investment. The slow bounce back was led by businesses renewing investments in software and equipment that were put off just a year prior. Businesses financed these expenditures by spending vast cash reserves hoarded as a safety measure against the withering economy in 2008 and 2009, a trend that trailed off in 2011. The lingering effects of the recession-plagued the residential construction market significantly. Compared to nonresidential construction, housing projects are completed at a much faster rate, and thus, the ups and downs of the economy are incorporated sooner. However, persistently high unemployment and the looming possibility of a large "shadow inventory" of delinquent, but not yet foreclosed homes entering the market led to persistent declines through 2010 and only a slight recovery in 2011.

Demand for housing accelerated between 2012 and 2015 and continued growing in 2016. In 2017, growth in residential fixed investment slowed due to increasing interest rates. In regard to nonresidential fixed investment, a drastic decline in commodity prices forced businesses to delay or cancel investment in nonresidential activity. In 2015, investment in the mining and energy sectors dropped an estimated 35.0%. Continued uncertainty regarding commodity prices and weak corporate profits caused nonresidential spending to fall 0.6%. The combined effect of these factors resulted in a decline of 0.1% in overall private investment in 2016, with strong residential investment preventing a more dramatic overall decline. In 2017 and 2018, commodity prices rebounded somewhat, particularly oil and natural gas. The improved outlook for these commodities in 2018 has since supported nonresidential fixed investment growth.

Changes to the business environment, such as loosening regulations and corporate tax reform, are sustained growth in 2018 and the start of 2019. In 2018 specifically, private investment grew by 5.8% on the back of a booming economy and tax reform. While tax savings did not solely flow toward investment, as corporations did increase their stock buy-back activity, private investment growth in 2018 was the highest it has been since 2014. Investment growth decelerated 3.2% in 2019, as the headwinds challenging the economy intensified as it has approached the end of its expansion.

In 2020, the COVID-19 (coronavirus) outbreak in China weighed on its industrial activity in the first quarter, disrupting global supply chains and demand as it has spread globally. As a result, despite having cut interest rates in 2019, the Federal Reserve lowered its federal funds rate target to near-zero in March of 2020. Rates remained low in 2020 as the virus spread and forced lockdown mandates throughout the United States. This did little to quell market jitters. Exacerbating volatility, Saudi Arabia increased its production of oil and slashed prices in response to Russia refusing to lower its output alongside other OPEC producers, as a decline in global energy demand occurred. While oil production cuts were later agreed to, a massive decline in global demand weighed on businesses' appetite to invest in the short-term, leading to aggregate private investment declining 4.5% in 2020.

Consumer behavior and the economy rebounded significantly during 2021. As a result of historically low mortgage rates, residential construction buoyed overall investment.

In 2022 however, mounting inflation reached its highest level since the early 1980s. Due to rising levels and concerns of continued growth in energy prices amid the ongoing war in Ukraine, the Federal Reserve began tightening monetary policy, with six interest rate hikes during 2022. Despite markets being pressured, private investment continued to slowly climb during 2022, increasing 6.0% during the year, as confidence in a resilient economy continued. In 2023, the Federal Reserve raised rates further during the year, with the Federal Funds Rate reaching 5.25% to 5.50%. Despite the resiliency of the economy, private investment only slightly increased by 0.1% during the year, as lagged effects of higher rates limited growth within markets.

Meanwhile, in 2024, the Federal Reserve began to cut rates, helping to sustain growth. Rate cuts will occur in 2025. Still, the Federal Reserve will carefully monitor these cuts because of the tariffs imposed by the Trump Administration on goods from countries like Mexico and Canada and significant increases in tariffs on Chinese goods. These tariffs will lead to higher product costs, heightening inflationary pressures and prompting businesses and consumers to be cautious about spending. Because of this, aggregate private investment growth will be moderate in the year.