One day after President Bush pointed the finger at Congress and told the American public to blame lawmakers for all of their recent financial woes, an inkling of actual positive news came out of Washington Wednesday with two announcements from government agencies.
In the first, and the more closely watched of the two, the Federal Reserve took a much anticipated move to lessen the pressure on the nation’s economy by lowering the federal funds rate another 25 basis points to 2 percent (that’s a long way down from the 5.25 percent the Fed started with when it cut the first 50 basis points off in Sept. 2007).
After 17 consecutive upward “adjustments” as they were called under former Chairman Alan Greenspan, the Fed under current Chairman Ben Bernanke has now cut short-term rates seven times in eight months.
General weakness in the economy was citied by the Federal Market Open Committee as the primary reason for this latest cut. More specifically, however, the Fed announcement highlighted a number of factors for its decision such as subdued household and business spending, soft labor markets, stressed out financial markets, tight credit conditions and the continuation of the housing contraction.
The vote was 10-2 in favor of the cut in the federal funds rate. However, in a similar action taken at the same meeting, FOMC members unanimously approved a 25 basis point cut in the Fed’s discount rate down to 2.25 percent.
In the second announcement made earlier in the day, the Commerce Department said that real Gross Domestic Product (GDP) increased at an annual rate of 0.6 percent during the first quarter of 2008, the same rate of increase as tracked for the fourth quarter 2007.
With this second straight quarterly expansion in the U.S. economy — no matter how slight it is — the New York Times is reporting that the current situation does not fit into the classic definition of a recession, which is a "significant decline in economic activity spread acorss the economy, lasting more than a few months." This is a positive sign to many people (except those who believe we’re already in a recession).
On the plus side, personal consumption expenditures for services, private inventory investment, exports of goods and services and federal government spending helped prop up the nation’s economy for the quarter.
Those positives were offset by an upturn in imports, a downswing in personal consumption expenditures for personal goods, and the housing slump (which the Commerce Dept. calls the “real residential fixed investment”), marked by a 26.7 percent decrease in home sales following a 25.2 percent decrease the previous quarter.
Generally speaking, both announcements are signs that something positive is being done to keep the nation’s economy moving forward, although it seems to be at a snail’s pace right now. However, both reports also reveal the devastating impact housing is having on the overall health of the economy.
There is no quick fix for the current weak state of the economy. Consumer spending is down, while the costs of energy and food are surging, resulting in lower consumer confidence for the immediate future anyway.
What potential homebuyers and investors need to recognize from all of this is that hoping to catch the market at or near the bottom before values start appreciating again is most likely not going to happen.
2008 is definitely a good time to jump into the water and find that property that meets your criteria — and at bargain prices too for the time being (however long that is).