Poole on Housing and Recessions

Bill Poole, the outgoing President of the St Louis Fed, gave a speech yesterday on housing that essentially endorsed Ed Leamer's view from his Jackson Hole talk that housing recessions are almost always the proximate cause of full-blown recessions:

Consider Figure 6 ... Each line shows the average contribution to real GDP growth (in percentage points) eight quarters before and after each cycle peak from 1953 to 2001. There are three lines representing the contribution to real GDP growth from residential fixed investment (housing), nonresidential structures (commercial and industrial), and business equipment and software investment. These are the major components of private fixed investment.

Residential investment typically turns down ... well before the other two investment components. The figure shows that, on average, housing peaks about three quarters before a recession starts....

Figure 6 makes clear that housing... leads the economy into recession and out of recession.

Here's the graph of year-over-year changes in residential investment:

So if past is prologue then we've got a problem, because it means we're already in a recession.