Housing starts surge in September. Should Ben Bernanke get the credit?

October 17, 2012

Here's some encouraging economic news. Housing has long been a weak spot in the U.S. economy, but the sector appears to have performed exceptionally well in September.


(Orlin Wagner - Associated Press)

New housing starts rose 15 percent last month, while the number of housing permits issued rose 11.6 percent, according to new Census Bureau data.* That was far ahead of what anyone had expected—analysts were predicting a mere 1.1 percent rise in permits. There's also been a significant improvement since last year, with permits now up 45.1 percent over their level in September 2011.

Still, let's put this in perspective: Housing starts are still dramatically below their long-term average, as the chart below from Calculated Risk illustrates. We're still very far from a full recovery. Indeed, there's a decent case that, in the three years since the housing bubble collapsed, the United States has now shifted from having too many houses to having too few:

An upward trend, assuming it's not just a blip, would be quite welcome. As the housing sector expands, that should mean higher levels of construction employment—which has been one of the persistent weaknesses in the labor market.

One big question, meanwhile, is whether Ben Bernanke should get any credit for the September surprise in housing. After all, the Federal Reserve announced its expanded "quantitative easing" program to reduce interest rates and bolster economic expectations back on Sept. 13. Two weeks later, we've got what looks like a housing surge. Coincidence?

Matt Yglesias argues that, yes, the two are likely linked: "QE 3 was clear, forceful and yet also relatively modest, so a short-term one-off surge in investment activity (housing starts) and durable goods purchases (car sales) followed by a speedy return to the trend growth path is exactly what we should expect." Then again, that would be an awfully quick rush to get permits filed in just two weeks. Unfortunately, the Census doesn't break down the data into week-sized chunks so that we could settle this more easily.*

P.S. As David Hilzenrath has argued on this blog, the housing starts data tends to be fairly noisy, with a high margin of error (the rise in housing starts for September was 15 percent plus or minus 12.1 percent). So while there does appear to be a real uptick in starts, it's unclear just how big it is. On the other hand, the Census' building permits data tends to be more accurate (with a margin of error of just 1.1 percent), so the sharp increase there is a solid sign that construction activity picked up last month.

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Michelle Williams · October 17, 2012