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The Fed’s rate cut yesterday is in response to slower global growth, uncertainty fueled by the trade war, and a lack of measurable inflation. The move signals that the Fed will do everything in their power to stop the economy from slowing but that ‘power’ is dwindling with just six short-term cuts away from hitting zero.
Consumers, the linchpin of our economy, continue to drive growth. At 70% of the economy, monitoring consumers is critical but many traditional measures like spending and confidence are lagging indicators. Retail sales are a good gauge of consumer health because a slowdown in the sector historically has preceded broader economic slowdowns; the latest read shows a positive clip year-over-year. Housing, another leading indicator, is also showing growth with the homeownership rate increasing to tie with the highest level since 2013 and the pending home sales index matching late-2017 values.
Historically, the Fed cuts rates at one of three times: 1. as an insurance cut to reignite demand and keep growth on track, 2. as an insurance cut gone wrong where the Fed believes it is doing number one but a recession ensues shortly thereafter, or 3. during a recession to give the economy a push. The Fed believes they are cutting in scenario one, but only time will tell how much the cuts will positively influence economic growth.
Consumer and government spending are driving the economy. Business investments continue to slow.
The national homeownership rate rose to 64.8%, up from earlier this year, but far below the 67.4% average in the year 2000.
New home sales are up 7% nationally year-to-date.