Thumbnail Sketch: Not a good week’s worth of economic indicators. How should we react—other than by hiding under a rock?

The Pending Sales Index, an indication of how many new purchase contracts were signed, fell by 7.7% in January, a startling decline in the number of sales.

It is worth noting, though, that while the number of sales contracts declined throughout most of the nation, they rose in the West by 2.4%.) Analysts attribute this to the number of distress sales in California (and Nevada and Arizona), but it is also true that mortgage applications fell in the week ending February 20, in spite of extremely attractive mortgage rates.

In other words, most indicators are not reacting as we might expect them to. We have reason to play with the idea that the real estate recovery, in all its essential invisibility, is developing first in the West. But most analysts, one suspects, would be very skeptical of such an idea—even though the number of real estate sales in the West has increased greatly in the past several months.

Nonetheless, two indicators may be considered the foundation for current gloom. One, noted last week, is the Consumer Confidence Index, which stands at a record low, pillaged by worries about the failing jobs market. (The most recent reading for unemployment insurance claims—to the left—validates the concern.)

Two, noted recently, is the Gross Domestic Product figure measuring the growth (or lack thereof) of the national economy. The preliminary reading last quarter of 2008 showed a decline of 3.8%– sizable but not as bad as most analysts had anticipated. The recent revision kicked the decline to 6.25%.

These indicators have plunged the market into a general state of hopelessness. Nothing that this or any President could do would bring immediate and sustainable cheer, for example, to the stock markets. Instead of seeking out the best solutions, we seem focused on finding the least negative courses of action. Certainly, with this market psychology it is premature to start talking about a real estate recovery.

Or is it? Aaron Smith notes that bank lending is showing the first signs of stabilizing. Having passed a major stimulus bill aimed at creating jobs, the Obama administration seeks to help the credit market regain something like normalcy. The concluding words in last week’s update were: “We can hope.” We conclude with those words again this week.

This article was supplied by Steve Peterson of  Sierra Pacific Mortgage.