Consumers may not be the only group tightening their wallets. According to the U.S. Commerce Department, orders for durable goods fell by 4.9% in August — the biggest drop in seven months.
Durable goods are defined as goods that are expected to last a few years. These goods include big-ticket items like autos, aircraft and major items often used by businesses. When orders for durable goods are down, economists fear that business is slowing because businesses are not spending or planning for future expansion.
Bloomberg reports the consensus estimate among economists is that the U.S. economy will grow by only two percent this year, America’s slowest annual economic growth rate in five years. (Earlier this year, economists were predicting the U.S. economy would grow at 2.5%… they keep lowering their forecasts as more negative economic news is reported.)
The big question is: how will the slowing economy affect investors?
I believe the U.S. economy is slowing quicker than most analysts and economists realize. As a real estate man with a quarter century of experience, I see young analysts failing to understand the overall negative impact a housing bust can have on the economy. And that’s exactly what is a happening right now.
Yesterday, I wrote about consumers reducing their overall spending. Today, we get news that business spending is on the decline. I am very concerned about the economic future for 2008. Soon, I expect the stock market to share the same concern.
Yes, the stock market likes the interest-rate cut the Fed gave us last week because it signals that the Fed will work with investors and consumers to avoid a recession. However, given the magnitude of the housing bust, I do not believe interest-rate cuts will be a tool the Fed will be able to rely on to boost the economy this time around.