Houston's Rate Sheet

Good 2005, Bad 4th quarter

The Commerce Department reported today that the economy grew a paltry 1.1 percent in the 4th quarter of 2005. This is the smallest growth the economy has seen in three years. The economic picture was worse than most predictors predicted. Many analysts predicted GDP growth around 2.8%. Despite a feeble 4th quarter, the economy had a solid year growing 3.5 percent through 2005. The slowdown is attributed to decline in consumer spending. Big ticket items such as appliances and cars have sharply declined. Since September 11th and the Internet bust, the consumer has bolstered the economy. Low interest rate refinances and high flying home prices have provided much of the fuel for consumer spending. With higher interest rates and higher prices at the gas pump, consumers find far less disposable income in the bank.

We would hope the Fed could look at these numbers and consider giving a boost to the economic picture by slashing rates. However, this is very unlikely at this point in time. The Core PCE deflator, the Fed’s favorite inflation indicator, accelerated to 2.2% from 1.4% in the third quarter. Curbing inflation is the Fed's number one concern. When the Fed meets next Tuesday, you can expect to see another rate hike.

Mortgage rates are unchanged on the day. This reflects a wait and see attitude on next week’s Fed meeting.

posted by Vincent Biondillo @ 9:39 AM