Tuesday, December 20, 2011

New Residential Construction Numbers Totally Bury Krugman

Paul "We are under depression conditions right now" Krugman just got smacked hard by the new residential construction numbers 

The numbers are off the charts and show Krugman totally clueless about how the economy works, since his comment that we are under depression conditions was written just two weeks ago.

Here's what is really going down, building permits in November ‘11 were 681,000, up 5.7 percent from October ’11 and up 20.7 percent from November ’10. Housing starts were 685,000, up 9.3 percent from the prior month and up 24.3 percent from the prior year.

Housing starts are now at a 1 1/2 year high.

Krugman-like Keynesian economists polled by Reuters missed the housing starts increase by 50,000 starts. They had forecast housing starts coming in at only a 635,000-unit rate.  

By region, the boost in starts was led by a 53.8 percent jump in the Northeast (where Krugman lives). Other regions showing increases were the West, up 22.6 percent, and the South, up 4.1 percent. The Midwest declined 18.2 percent.

The problem with Krugman and other Keynesian forecasters is that they don't have a sound model of the economy. The model is at its worst in forecasting changes in trend direction. They simply wait for the changes to occur before changing their trend forecasts, since they view the change as a result of a change in "animal spirits" (I am not making this up).

They simply stick with their animal spirits theory rather than admitting the Austrian school of economists, who say, "Hey, if you print money and push it into the capital goods sector, which includes housing, activity is going to pick up in the capital goods sector."


  1. Ah, the sweet, sweet taste of Krugman's tears...

    In any case Bob, be sure to remind your readers that Austrian school economists do not aspire to be Keynesian econometric psychohistorians and forecasters. Austrian economics is NOT a predictive science. It just so happens that understanding reality better makes it easier to forecast accurately... but accurate forecasting is NOT something that Austrian theory claims to do well.

  2. Well how hard can it be? The money supply goes up and boom follows.

    Keynesians really need to study what happened to their man in the 1929 crash and what friends he tried to bail out later on.

  3. The numbers were a result of +5 multi-family units being channel stuffed while single family continued to swirl the bowl. Look at the details of the Ministry of Propaganda's numbers before declaring anything better.

  4. @anon 10:30am

    Can you please explain what "+5 multi-family units being channel stuffed" means ... I honestly have no idea.

  5. ZeroHedge reports on the 5+ multi-family units.

  6. Just because the starts were in multi family units, does not make them unreal. As I wrote this morning in the EPJ Daily Alert:

    "Starts surged to a 1-1/2 year high in November and permits for future construction were the highest since March 2010. (Note the gains were mostly in multi-unit construction, not single family. The single family units will also boom, but that will take time. The key though is that money is flowing into the construction sector.)"

  7. Bit confused by the excitement. Multi-family completions were at a 40 year low for 2011. It is hard to go down from there. A statistically significant uptick is hardly surprising..


  8. I detest Krugman as much as any one but I don't buy that things are getting better despite the Fed's interventions.

    I'm sorry Robert but I completely disagree with your premise that things are getting better.

    Meanwhile calling the slight uptick in multi-family dwelling construction starts a sign of good things is madness, Sir!

    Bloomberg had a great (flash) chart this morning but you can see a screen shot here:


    It's practically at the lowest point ever!!! Robert, my excellent (and usually very accurate) friend stop drinking that Kool Aid!