The Economist just published “The 12 charts of 2012”. Chart number 4 is:
In such lifeless company America’s economy looked almost vibrant (chart 3). Its housing market turned a corner in 2012 (chart 4), and its unemployment rate fell steadily. But the recovery is still very weak. The numbers of long-term jobless stayed high; export markets drooped.
In trying to associate the unemployment dynamics with house prices, the Economist bungles it.
Below the relevant charts.
- Overall employment (NFP) & Residential Construction Employment
Note that overall employment continued to rise after residential construction employment began to drop.
- 2. Residential Employment & House Starts
House starts peak in January 2006. Residential construction employment falls in tandem.
- 3 The unemployment rate is NOT associated with house prices but clearly follows the lead of nominal spending (NGDP), only ballooning when spending tanks and falling with spending growth. But note that the LEVEL of employment is still low (and unemployment high) because NGDP is way below the ‘trend level’.
House prices fall, house starts drop, residential construction employment dips; but the overall economy is still doing ‘fine’. But when spending tanks all “hell breaks loose”.