Help Is On Its Way… Well Sort of…
I am stuck in the 1977 time frame as far as my music selections, and this week, I went with the Little River Band’s 1977 hit song “Help Is On Its Way.” I say this as many of the topics in my articles over the past several months are now beginning to be talked about by the mainstream “talking heads” on Cable TV. These articles, as many of you know, point to the fact that the economy is about to turn downwards, including rising unemployment, which we saw last week, and several other factors discussed in past articles.
One of the reasons that the Fed has not lowered rates is that consumer spending has continued at a record pace, which in turn has kept prices higher (inflation) than anticipated. We are now beginning to see signs that consumer spending is slowing, but the reasons are honestly scary. Consumer spending is slowing due to credit card limits now being reached by many Americans, and their savings rates are at their lowest levels in years. Consumer spending makes up close to 70% of our GDP in the US, and a decline in spending will ultimately bring GDP down in the near future. Many consumers have transferred some of their revolving credit card balances to “Buy Now Pay Later” programs to lower their payments on their revolving debt credit cards. The problem with this is that they may/probably re-run their credit card debts back up. While well intended, this program probably only worsens the overall debt problem, and we are already seeing alarming delinquencies. The consumers are not by themselves in this “reckless” spending pattern. The US Government spending makes up over 23% of our current GDP.
So, is there any good news? Is help really on the way? The answer is YES in terms of lower rates. I believe we will continue to see these numbers get worse before they get better. This will force the Fed’s hand into lowering rates as unemployment will most likely continue to rise, forcing spending to slow and ultimately bringing inflation down. Once we reach an unemployment number of 4.1% or higher, look for possible cuts by the FED later this year. We saw mortgage rates fall almost .25% in just a week based on a belief by the market that things are slowing down, which should bring inflation down and, ultimately, mortgage rates down. We are also in an election year, which could really throw a wild card into the mix. Hold on, folks. We are in for a bumpy ride.
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Blog post date: Thursday, May 9, 2024
