Correlation vs. Causality

From Calculated Risk:

"Residential investment (RI) is the best leading indicator for the economy. This isn't perfect - nothing is - but RI is usually a strong leading indicator for the business cycle. The slump in RI helped me call the 2007 recession correctly, and the lack of a recovery in residential investment is a key reason the recovery has been sluggish and choppy so far."

What is the correlation stated? What is the causality stated? Explain how the causality is established? Does it base on a solid reasoning (theory?) or just come out of the middle of nowhere?

Assuming the statement is correct, what is the most likely policy recommendation? Is that going to work or is that going to hurt?