In the summer of 2007, the housing market and the mortgage market were both in decline. Housing prices in most U.S. cities began to decline in mid-2006. With prices falling and the inventory of unsold houses rising, the production of new homes fell to around 1.5 million in 2007 from 2.3 million in 2005. With new construction falling dramatically, it was expected that construction employment would fall and that this would have the potential of slowing the national economy and increasing the general unemployment rate. Go to www.bls.gov and check out the recent data on total employment and construction employment. Have they gone up or down from their levels in August 2007? What has happened to the unemployment rate? Go to www.fhfa.gov and look at the housing price index. Have home prices risen or fallen since August 2007?

Finally, look at the latest GDP release at www.bea.gov. Look at residential and nonresidential investment (Table 1.1.5) during the last 2 years. Do you see a pattern? Does it explain the employment numbers? Explain your answer.