Car Sales Pointing to Lower Rates Ahead

While the analysts told us the U.S. housing slumps wouldn’t hit other parts of the economy, the opposite is happening. We can start by looking at falling U.S. auto sales.

Car and light truck sales fell by more than 7% in April 2007 from April of last year. GM was down 9.5%, Ford was down 13%, and even Toyota was down 4%. All three car manufacturers blamed the softening housing market and higher gas prices for putting a dent into April auto sales.

The weakening U.S. economy is not related to just the auto and property markets. U.S. Gross Domestic Product (GDP) was reported by the Commerce Department at 1.3% in the first quarter of 2007 — the worst reading in four years. Economists had been expecting growth of 1.8%.

While the Federal Reserve continues to talk about its concern about inflation, should the U.S. economy continue to falter (as I expect it will), the Fed will be ready to slash interest rates to fight the developing U.S. homemade recession. But the drop in U.S. interest rates will not be severe, as fast falling rates in the U.S. would cause too much havoc for the American greenback. If anything, U.S. interest rates will fall slowly.

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Logically, the Fed wants Americans buying cars. It also wants a stop to the hard landing real estate market, as a happily spending American consumer keeps us out of recession. Hence, the Fed will do what it needs to do to bolster consumer spending.

TIDBIT: The rich get richer… or stupider? Billionaire diamond mine mogul Lev Leviev just paid $525 million to buy the building which houses the New York Times. The seller, Tishman Speyer bought the building in 2004 for $175 million. It looks to me as if the Tishman group pocketed $350 million in three years. As for Leviev, time will tell if he made a good investment or a bad one. With Sam Zell selling and other “smart money” getting out of U.S. investment real estate, I’m not in the camp that thinks $525 million for the New York Times building is a deal at this juncture in our economic cycle.