How BEA Accounts for Investment in Private Structures

W HILE the term “investment” popularly means buying financial assets in hopes of a capital gain, the economic concept of investment refers to the creation of productive assets—a company building a new plant, for example, or a new home. Such spending on new assets adds to the nation’s capital stock, which is used in turn to produce other goods and services. In­ vestment is thus a key component of gross domestic product (GDP), which measures current production in the economy, and a perennial object of scholarly inter­ est. This BEA Briefing offers a guide to an important component of private business investment: structures. It also discusses recent improvements to the Bureau of Economic Analysis (BEA) statistics on investment in structures, which now better reflect productivity and quality changes. Private investment in structures, as defined by the national income and product accounts (NIPAs), gener­ ally includes domestic spending on structures by pri­ vate businesses, households, and nonprofit institutions regardless of whether the asset is owned by U.S. resi­ dents. Structures can be thought of as products that are usually constructed at the location where they will be used and that typically have long economic lives. BEA generally relies on tax accounting conventions regarding assets that can be depreciated as a rough guide in determining what kind of spending is consid­ ered investment in the national economic accounts.1 As defined by the NIPAs, most (but not all) struc­ tures are buildings. Accordingly, BEA classifies struc­ tures investment as either nonresidential or residential. Nonresidential investment consists of new construc­