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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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  • Strauss, Jack, 2013. "Does housing drive state-level job growth? Building permits and consumer expectations forecast a state’s economic activity," Journal of Urban Economics, Elsevier, vol. 73(1), pages 77-93.
  • Handle: RePEc:eee:juecon:v:73:y:2013:i:1:p:77-93
    DOI: 10.1016/j.jue.2012.07.005
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    2. Christiansen, Charlotte & Eriksen, Jonas N. & Møller, Stig V., 2019. "Negative house price co-movements and US recessions," Regional Science and Urban Economics, Elsevier, vol. 77(C), pages 382-394.
    3. Zivile Zekaite & Gabe de Bondt & Elke Hahn, 2017. "Alice: A New Inflation Monitoring Tool," EcoMod2017 10414, EcoMod.
    4. Marianne Sensier & Michael Artis, 2016. "The Resilience of Employment in Wales: Through Recession and into Recovery," Regional Studies, Taylor & Francis Journals, vol. 50(4), pages 586-599, April.
    5. 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.
    6. Sebastian Garmann, 2017. "Electoral cycles in public administration decisions: evidence from German municipalities," Regional Studies, Taylor & Francis Journals, vol. 51(5), pages 712-723, May.
    7. Coble, David & Pincheira, Pablo, 2017. "Nowcasting Building Permits with Google Trends," MPRA Paper 76514, University Library of Munich, Germany.
    8. Jan R. Kim & Keunsuk Chung, 2016. "House prices and business cycles: The case of the UK," International Area Studies Review, Center for International Area Studies, Hankuk University of Foreign Studies, vol. 19(2), pages 131-146, June.
    9. David Coble & Pablo Pincheira, 2021. "Forecasting building permits with Google Trends," Empirical Economics, Springer, vol. 61(6), pages 3315-3345, December.
    10. Bryan Perry & Kerk L Phillips & David E. Spencer, 2015. "State-Level Variation in the Real Wage Response to Monetary Policy," Annals of Economics and Finance, Society for AEF, vol. 16(1), pages 1-17, May.
    11. de Bondt, Gabe J. & Hahn, Elke & Zekaite, Zivile, 2021. "ALICE: Composite leading indicators for euro area inflation cycles," International Journal of Forecasting, Elsevier, vol. 37(2), pages 687-707.
    12. Tatjana JOVANOVIÆ & Aleksander ARISTOVNIK & Tereza ROGIÆ LUGARIÆ, 2016. "A Comparative Analysis Of Building Permits Procedures In Slovenia And Croatia: Development Of A Simplification Model," Theoretical and Empirical Researches in Urban Management, Research Centre in Public Administration and Public Services, Bucharest, Romania, vol. 11(2), pages 5-23, May.
    13. Torben Klarl, 2016. "The nexus between housing and GDP re-visited: A wavelet coherence view on housing and GDP for the U.S," Economics Bulletin, AccessEcon, vol. 36(2), pages 704-720.
    14. Steven Gordon, 2019. "The Returns to Lobbying: Evidence from Local Governments in the “Age of Earmarksâ€," Public Finance Review, , vol. 47(5), pages 893-924, September.

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    More about this item

    Keywords

    C53; E32; R11; Housing; Job growth; Forecasting; Business cycles;
    All these keywords.

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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