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The housing market slowdown is here.

11:00 PM, Mar 13, 2006 • By IRWIN M. STELZER
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Against the downward pull of a housing slowdown must be set several offsetting factors. The unemployment rate is a low 4.8 percent and new jobs are being created at a rate that has begun to be reflected in rising wages in what economists at Goldman Sachs dub "a tightening labor market." Most CEOs in large companies plan to step up hiring. Consumers should be helped by the drop in gasoline prices from the levels they reached in the aftermath of Katrina. If OPEC holds to its pledge to keep production at current levels, and the cutback by Europe in its gasoline exports to the United States is not too sharp, the worst of the oil price explosion might be behind us. Unless, of course, Muslim extremists succeed in disabling some of Saudi Arabia's oil facilities.

Then there is the continuing strength of corporate earnings, which rose in the fourth quarter of last year by around 14 percent, the tenth consecutive quarter of double-digit earnings growth. (Drop out the increased earnings of energy companies, and growth was still about 9 percent--in a quarter in which the effect of Hurricane Katrina undoubtedly dragged down earnings.) That has turned cash flows into cash floods and improved balance sheets. Little wonder that most executives are planning to step up their investment spending and hiring.

All of which presents Fed chairman Ben Bernanke with a problem. He is looking at an economy with a tightening labor market, rising wages and declining productivity, companies boasting to shareholders of a return of pricing power, and what William Poole, president of the Federal Reserve Bank of St. Louis, calls a "great deal of momentum." All of these factors should incline him to continue raising interest rates.

But that would increase the "risk-management challenge" he has warned small banks they face because of their exposure to the commercial property market. It would strengthen the dollar, making exports more expensive and imports cheaper, thereby widening a trade gap that many experts considered unsustainable, even before it soared again in January. And it would result in higher mortgage rates that might turn a soft landing in the housing sector into the sort of loud thump one hears when there is a crash.

Bernanke won't complain as he wrestles with the burdens of office. If he does, President Bush might sing him a few lines from an old hit: "I never promised you a rose garden . . . Share the good times while we can . . . along with the sunshine there's gotta be a little rain sometimes."

Irwin M. Stelzer is director of economic policy studies at the Hudson Institute, a columnist for the Sunday Times (London), a contributing editor to The Weekly Standard, and a contributing writer to The Daily Standard.