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How Does Building Permits Act as an Economic Indicator

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Building permits

Before the construction of a building, permission must be obtained to build it in the first place. Building permits are a form of permission or authorisation which is granted by the government or other legal, regulatory bodies for the construction of a new or existing building legally. The US Census Bureau collects the information and publishes the total count of building permits in a period of one month. The monthly survey covers about 9,000 permits across the country. The building permits data is used by several different firms for different needs, which will be discussed in further sections of the article.

How are the building permits measured?

A survey is performed in all units of the target population, and the data that is acquired includes the permit number, type of project, total building area, addresses of the owner, the builder and the building site. The mentioned data is collected directly from survey respondents. This data which is collected might not be completely genuine. So, the collected data is passed through automated data capture and complex data review procedures. Quality control procedures are enforced to confirm that the collected information is as reliable as possible. Subsequently, the data undergoes through methods such as imputation, quality evaluation, disclosure control, revisions, seasonal adjustments, and data accuracy. Finally, the completely processed data is released.

The type of build permit issued also helps in indicating the economic growth of a country. For example, the demand in the commercial building permits suggests that the businesses are amplifying and this signifies that the commerce will increase in the near future. Similarly, an increase in the domestic building permits indicates that there is a need for more individual homes, which in turn implies that the common people have acquired enough capital to afford their own residential homes.

What does the Building Permits measure?

The data obtained is used by economists in developing an index. This acts as an economic indicator and is used by the Fed Council to analyse the economic conditions in the nation as well as in the state. The Housing and Urban Development department uses it for preparing housing programs. The building permits numbers are used by the banks to determine the demand for mortgage loans on a short-term and medium-term basis. Economists use this indicator in a different way. They combine it with another economic indicator called ‘housing starts.’ According to economists, the number of issued permits is directly proportional to the economic sentiments and construction investments. In other words, as the number of issued permits increases, the economy sentiments are seen improve and also the construction investments increases.

A reliable source of information on building permits economic indicator

The parameters we are interested in extracting from the building permits indicator are, change in the total number of dwelling units approved, present data of building permits, historical high and low, short and long-term forecast, etc. All these parameters can be obtained and accessed in the links given below for different countries. The web portal also represents the data in the form of a bar graph, which helps in better interpretation of the values.

AUDhttps://tradingeconomics.com/australia/building-permits

NZDhttps://tradingeconomics.com/new-zealand/building-permits

CHFhttps://tradingeconomics.com/swaziland/building-permits

USDhttps://tradingeconomics.com/united-states/building-permits

CADhttps://tradingeconomics.com/canada/building-permits

EURhttps://ec.europa.eu/eurostat/web/products-datasets/product?code=sts_cobp_m

JPYhttps://www.theglobaleconomy.com/Japan/building_permits/

What do traders care about the building permits and what and its impact on the currency?

By now, we know how building permits data is found to be very useful to economists, the Fed Council, Housing, Urban Development Department, and Banks. It is quite helpful to traders and investors as well. A lot of traders and investors keenly keep an eye on the building permit reports. It provides information on employment and finance. And this information is examined by the traders as it gives hints and clues on the nation’s future economy.
The building permits report plays a vital role in the Forex market as well. If the reports are stronger than the forecasted report, then the currency tends to appreciate. Conversely, if the current reports are weaker the forecasted report, then the currency tends to depreciate in value. Therefore, it can be said that the building permits and the currency go hand in hand.

Frequency of release

The Building Permits report is generally released on a monthly basis. However, the publication dates are different. Below are the publishing dates of this indicator for major economies.
AUD – Monthly, published after 30 days
USD – Monthly, usually published on the 18th working day of every month
NZD – Monthly, usually published on the 30th day of the month
CAD, JPY, EUR, CHF – Monthly, usually released after 30 days

Conclusion

Building permits are authorisations for the construction of a building. The requirement of building permits is to ensure the safety of the work regarding compliance with construction and zoning codes. Skipping the building permits before the construction of a building could lead to severe complications. The owner might have to pay double or triple the permitting fees, or the owner could be ordered to shut down the current project. We consider building permits as a leading economic indicator as it helps the economists in determining the country’s future economy based on historical reports and forecasts. The reports crucially affect the changes in the value of a country’s currency. But, unfortunately, not all traders and investors study deep into the building permits data and consider it to be insignificant. They pay more attention to GDP, non- farm payrolls, unemployment data, etc. and ignore some of the significant economic indicators. Building permits plays a vital role in determining the economy of the nation and must be used by traders to extract the maximum amount of benefits from it.

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