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Does housing drive state-level job growth? Building permits and consumer expectations forecast a state’s economic activity

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  • Strauss, Jack

Abstract

National and state-level building permits significantly lead economic activity in nearly all US states over the past three decades, and produce substantially more accurate out-of-sample forecasts of state-level job and income growth than other traditional indicators including the leading indicator index, housing prices and wealth. We demonstrate that building permits have substantially declined before every recession since 1970, and that differences in permits across states before the last seven recessions explain the relative severity of a state’s job and income losses during these recessions. Hence, we can use permits to predict which states will suffer the greatest job losses in a recession. We show further that housing reflects expectations of future economic activity as permits are closely related to movements in consumer expectations, and both lead the business cycle by four quarters. Differences across regions in consumer expectations and permits are also highly correlated, and both can forecast interstate differentials in job and income losses across regions, particularly during recessions.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Urban Economics.

Volume (Year): 73 (2013)
Issue (Month): 1 ()
Pages: 77-93

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Handle: RePEc:eee:juecon:v:73:y:2013:i:1:p:77-93

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Web page: http://www.elsevier.com/locate/inca/622905

Related research

Keywords: C53; E32; R11; Housing; Job growth; Forecasting; Business cycles;

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References

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Cited by:
  1. Huang, MeiChi, 2014. "Bubble-like housing boom–bust cycles: Evidence from the predictive power of households’ expectations," The Quarterly Review of Economics and Finance, Elsevier, vol. 54(1), pages 2-16.

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