Top of the news: Analysts were surprised this morning by a report that January existing house sales fell nationally by 5.3 percent, the weakest month since July 1997. They shouldn’t have been. Evidence continues that the housing bubble still hasn’t fully deflated, for all the pain already inflicted.
How over-inflated? PIMCO’s Mark Kiessel estimates prices are still 10 percent to 15 percent too high, based on long-term historical measures. By CEPR’s analysis, the bubble is only 60 percent deflated. My head hurts, and not just because I’m caffeine-deprived this morning. It could be far worse than what’s being experienced in Seattle. Some estimates say house prices in some areas could fall by 50 percent from their peaks. Of course this perpetuates the nasty cycle of lost wealth, driving a consumer pullback, causing layoffs…and round and round we go.
The back story: Former Washington Gov. Gary Locke is expected to be named as Commerce Secretary-designate today by President Obama — and I bet Locke is already tired of the “third time is a charm” jokes. No doubt the White House gave him the turbo-vetting after the Bill Richardson and Judd Gregg uh-ohs. It will be interesting to see what Locke makes of the job — or perhaps what it makes of him. Commerce was long a back-water. That shouldn’t be the case with the current unpleasantness — if Locke can carve a place amid the big econ egos of Larry Summers and Bob Rubin.
It won’t hurt to have someone intimately familiar with Boeing and Microsoft. (UPDATE: Commerce also oversees NOAA, the National Oceanic and Atmospheric Administration, a critical agency in working for healthy oceans and addressing climate change.) He’ll also have a role in trade policy, although he’s not U.S. Trade Rep. And as the devastation of Ohio and Michigan since 2000 shows, the current trading system is creating big losers in America — as well as winners in places like Seattle. Tough balancing act.
So How’d He Do? Dept.: The president’s State of the Union speech seems to have gotten universally good marks (pay no attention to the Dow). He spent most of it on the economy, hitting the right notes. The economic situation is scarier than candidate Obama probably ever imagined. So he can’t dump that bucket of cold water on the American people. He’ll sprinkle bread crumbs of reality and hope we follow. It’s important to realize that much of the stim just goes to backfill state obligations and other needs that have been left undone or cratered by the downturn in state tax revenues (or years of tax cutting). Less of the stim is really forward-leaning, to prepare the nation for the 21st century. But he’s an ER doc doing triage right now. I felt in good hands. Young Dr. Geithner…I’m still not so sure.
Today’s Econ Haiku
It’s all the rage, right and left
Get out your wallets