Housing and Stocks Each month, the Department of Commerce releases its estimate of construction activity. A key measure is the percentage change in the number of new homes under construction. Are...

Housing and Stocks Each month, the Department of Commerce releases its estimate of construction activity. A key measure is the percentage change in the number of new homes under construction. Are changes in home construction associated with changes in the stock market? These data show the percentage change in the number of new, privately owned housing units started each month, as reported by the Department of Commerce. The data also include the percentage change in the S&P 500 index of the stock market.

(a) Before looking at these data, do you expect these variables to be associated? If so, what do you anticipate the correlation to be?

(b) Draw the scatterplot of the percentage change in the S&P 500 index on the percentage change in the number of new housing units started. Describe the association.

(c) Find the correlation between the two variables in the scatterplot. What does the size of the correlation suggest about the strength of the association between these variables?

(d) Suppose you know that there was a 5% increase in the number of new homes. From what you’ve seen, can you anticipate movements in the stock market?