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Economists know -- and the
reason the Federal Reserve raises interest rates -- that an over-heating
economy will slow as interest rates increase. Slowly increasing
interest rates over the last several months while decreasing tax
rates has brought the US into a different, but perfect balance. A
housing bubble is correctly deflating rather than imploding. Housing
will pick up -- likely in the second half of 2007, but for now it is
not fueling higher inflation. The US has a well-tuned economy. |
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In the third
calendar quarter, the US economy grew at the predictably slower --
as planned -- pace of 1.6%. This, the slowest pace in three
years, will help prevent inflation in 2007. This 1.6% pace was
comfortably less than the previous quarter's growth of 2.6%. |
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Consistent with increased interest
rates, housing purchases slowed, prices relaxed their recent rapid
increase. In this price-decline market, more real estate
transactions took place. More transactions mean that there are
buyers -- perhaps wiser than most recent buyers -- waiting for lower
prices. Houses continue to sell, more buyers will come into the
market, and within a year or so, prices will likely start to
increase. This straightforward interest rate -- housing cycle is
well known and is often repeated. |
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The US
trade gap increased because US consumers
bought more foreign-made goods. |
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The decline in energy prices that
has gained momentum late in the
third quarter is
helping sustain consumer spending
and restraining inflation. |
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The
University of Michigan's consumer confidence
survey showed that consumers are more confident today as measured
during October, than at any time in the last 15 months. The
U of M's consumer sentiment index rose to
93.6. This is up from 85.4 in September. |
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To paraphrase the U of M's school sports song, Go US
Economy, GO ! |
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