If the Housing *Is* the Business Cycle, What Does this Picture Mean?

That’s what Ed Leamer noted back in 2007. Residential construction employment, spending, housing starts, new home sales, all normalized to 2021M11.

Figure 1: Residential construction employment (blue), residential construction spending deflated by PCE (tan), housing starts (green), new homs sales of single family units (red), all seasonally adjusted, in logs 2021M11=0. Source: BLS, Census, Census/HUD, BEA, and author’s calculations.

Back in September, Leamer didn’t see an imminent recession. Not sure what we would make of the current data. In fact, he argues that housing is a less reliable predictor of recession, given the lack of a big buildup in housing in the face of continued strong demand, and the general strength of the financial system, in contrast to 2007.