Let's run down the macroeconomic checklist. Inflation? It seems to be heading slowly back to the Fed's target of two percent. Unemployment? We're two quarters away from full employment, at least as the Congressional Budget Office defines it. Labor markets more generally? Also tightening, now quickly. Output? Steady overall.
Housing? If there is anything that looks worse than before interest rates jumped in summer 2013 -- that is, something that would suggest a reassessment of where monetary policy is headed -- it's housing. Everything else looks soon to be ready for monetary policy's exit.
One-unit residential construction had begun crawling upwards from historic lows in 2011 and 2012. Then comes the fear of the taper and -- wham -- the rebound in construction just stalls out.
It's no less apparent if you include multifamily housing. Real residential construction spending is also ugly. So it's no surprise that residential fixed investment as a share of GDP has been flat for the last four quarter at its super-low level. New one-family home sales are stalled out, too.
Why should all that be a subject of concern?
Keep in mind that for much of that trough, exceptionally weak housing was one of the main factors the Fed cited in its monetary-policy statements as cause for keeping its policy rate at zero. And it was the essential reason for why the Fed got involved on the longer end of the yield curve. "The housing sector continues to be depressed," or a similar phrase, sat in the top paragraph summarizing economic conditions for years. The current phrase is: "The recovery in the housing market remains slow." That seems a considerable overstatement of where we are. The recovery in the housing market is not slow. It's nonexistent. It has been since July 2013.
That suggests the housing sector is at the moment substantially more dependent on relaxed monetary conditions than I, and quite a lot of other analysts, thought it was when mortgage rates jumped. For a while since then, I have been worried about the apparent disconnect between prices and construction, as resurgent home values should push a lot of buyers into the market for newly-built homes. That wasn't happening. Now, however, the contradiction may be resolved in an adverse way: Home prices have stopped rising for the last few months.
There may be more to the weakness in housing than just the jump in interest rates. The U.S. is still amid the deleveraging process for mortgage debt. And, as John Carney and Justin Lahart write, it's hard to see why young people would be taking on new mortgage debt, what with their student loans and their at-best modest income prospects for now. Jed Kolko of Trulia makes the point even more convincingly with MSA-level data, showing that job growth has surpassed rebound effects as the main determinant of home-price appreciation. I have no doubt that all of these bigger forces are at play -- but look at the graph again. Does the housing recovery not stall out right in summer 2013?
Housing seems to provide a more unambiguous case for a slow exit than labor markets at this point, even if that's what the Fed has chosen to talk about at Jackson Hole this week. This rate of construction is not at all what the U.S. should be seeing if monetary easing can rightly declare mission accomplished.