U.S. housing starts approach year high, permits weak | Reuters
Housing starts rose percent to a seasonally adjusted annual rate of The number of Americans filing claims for unemployment benefits fell. National home builders association discusses economics and housing policy. by , in December and the unemployment rate rose to %; however, this . from authorization to start and another months to finish the construction. Calgary's sluggish economic recovery will keep housing start years ago with the collapse of energy prices, with the city's unemployment rate.The 2008 Financial Crisis: Crash Course Economics #12
The purpose of this graph is to show that these three indicators generally reach peaks and troughs together. Note that Residential Investment is quarterly and single-family starts and new home sales are monthly. For the current housing bust, the bottom was spread over a few years from into This was a long flat bottom - something a number of us predicted given the overhang of existing vacant housing units.
Housing plays a key role for employment too. Here is an update to a graph I've been posting for a few years. This graph shows single family housing starts through August and the unemployment rate inverted also through September. You can see both the correlation and the lag.
U.S. housing starts approach 11-year high, permits weak
The lag is usually about 12 to 18 months, with peak correlation at a lag of 16 months for single unit starts. The recession was a business investment led recession, and the pattern didn't hold. Housing starts blue increased a little in with the homebuyer tax credit - and then declined again - but mostly starts moved sideways for two and a half years and only started increasing last year. You can spend money on goods and services and assets.
One way I look at it is by supposing that there is a period of leveraging up to buy assets under a period of low volatility When it does increase and asset prices fall, the entire economy has more liabilities than assets. Therefore, on a micro level, everyone is trying to deleverage all at once, which reduces the amount of money circulating in an economy.
Money can be spent on both goods and services and assets. Not only that, but the empirical evidence for endogenous money seems extremely clear the ECB wrote a paper not too long ago on the fact that the money supply being endogenous.
Spending out of wage payments is what in part finances NGDP. Employers and others who make productive expenditures did not expect a sudden drop in spending on final output. It was precisely the decline in productive expenditures that explains the drop in NGDP, not the other way around.
Calculated Risk: Housing Starts and the Unemployment Rate
If NGDP falls, then we have to find out why productive expenditures such as wage payments fell PRIOR, since those expenditures logically and temporally precede spending on final output.
People do not suddenly and capriciously decrease their spending on final output.
The market monetarist story that people expected a fall in NGDP, and that is what reduced their productive expenditures, as if this spending would not have fallen if only NGDP kept growing, is a weak rebuttal.
It is weak because no investor or seller cares about NGDP. The solution to the recession puzzle resides in the area of savings and capital; in productive expenditures and asset valuations. It does not reside in final spending, which can theoretically be composed entirely consumption spending tomorrow, in which case there would be zero demand for labor, zero demand for capital goods, and a devastating depression.
This is definitely an unlikely scenario, but the point of it is to show the logic, which is clearly flawed, behind NGDP targeting theory.