The Federal Reserve Cut Interest Rates 0.25%… The Fed Funds rate now stands at 1.75% to 2.00%.
What it means – The vote was 7 to 3, which isn’t great. Two of the dissenters wanted to hold rates steady, while the third wanted to cut rates by 0.50%. President Trump was definitely a dissenter, as he tweeted that the Fed failed again, and Chair Powell has no vision. Powell left the door open to cut rates again this year… or not. He essentially said, “We don’t know what’s going to happen, so we don’t know what we’re going to do.”
His noncommittal comments left investors vexed. They sold off stocks immediately after the rate announcement, then bought them back to finish the day unchanged.
The Fed move comes on the heels of the ECB announcement last week, where that central bank lowered rates from negative 0.40% to negative 0.50%, and restarted its bond buying program. The Fed action looks more like an attempt to keep the dollar from shooting to the moon than a push to drum up borrowing and spending.
Industrial Production Rebounded in August, Up 0.6% after Falling 0.1% in July… The manufacturing sector expanded 0.5%, and capacity utilization ticked up from 77.5% to 77.9%.
What it means – While manufacturing captures our attention, the other two sectors of mining and utilities also showed strength, up 1.4% and 0.6% respectively. The mining sector includes oil and gas exploration and production, so this area will get a boost after the attacks on the Saudi oil production facilities. It’s not how you want to see it happen, but that will be good news because the sector has been flat in 2019 after two great years.
Housing Starts Jumped in August, Up More Than 12%… Starts increased from 1.215 million units to 1.364 million.
What it means – Housing starts are volatile, but that’s okay, we’ll take this report as a good sign. Starts are separated into multi-family and single-family. The single-family variety are more important because it takes more capital and labor to build them. In this sector, starts increased to 919,000, and permits increased to 866,000. That puts single-family starts and permits just below last year’s peak.
The best part of the report was that housing completions increased to 1.294 million, which will add much-needed inventory to the market. With interest rates dropping, more buyers are looking for homes.
Existing Home Sales Up 1.3% in August… The results put home sales on pace to move 5.49 million units this year, and the monthly tally just edges out February for the best month of 2019.
What it means – Falling interest rates are diving down mortgage rates and attracting buyers to the market. The 30-year fixed mortgage rate dropped from 4.95% last November to 3.5%, giving buyers a chance to scoop up a lot more home for the same monthly payment.
The median sale priced dipped a bit to $278,200, but it’s still 4.7% over last year’s number. Supply remains the problem, at just 4.1 months of inventory.
The steady-if-not exciting results are good news for the real estate industry, which has struggled to gain traction for growth this year. If exceptionally low rates continue through the fall, maybe things will get better.
WeWork Postpones IPO… The workspace sharing company removed its planned stock listing after investors indicated they saw the valuation much lower than the company.
What it means – WeWork last raised money at a $47 billion valuation. Investors were thinking maybe half that number… or maybe even lower. From the CEO’s misadventures in spending money to the company’s questionable business model that racks up billions of dollars in losses with no profit in sight, there were plenty of red flags about this one. By taking itself off the market, WeWork saved a lot of investors from themselves.
Amazon Orders 100,000 Electric Vans from Start-Up Rivian… Amazon CEO and Founder Jeff Bezos was so smitten with Rivian’s electric truck concept that he invested $700 million in the company, more than 30% of the total that Rivian has raised to date. But then Bezos moved to the other side of the table to become a client. Amazon just placed an order for 100,000 electric delivery vans from Rivian, even though the company won’t sell its first vehicle, an electric pickup truck, before the end of 2020.
That’s no problem. Bezos can wait. Amazon expects its first delivery in 2021 and estimates it will take three years to get the full fleet into operation.
Data supplied by Dent Research/Delray Beach Publishing
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