Economist's Commentary: August 5, 2008

Quick Take on the Economy: August 5, 2008

By Danielle Hale, Research Economist

As expected, the FOMC left the Federal Funds rate unchanged at 2.0%.
In its statement, the FOMC reiterated concern for both inflation and weak growth, an indication that rates are likely to remain unchanged for some time going forward.

The ISM-NMI increased 1.3 percentage points to 49.5% in July. A reading below 50 percent indicates the non-manufacturing sector is generally contracting.
The NMI is broken down into industries and activities. The Real Estate, Rental & Leasing industry and eight others reported growth in the composite or overall measure of activity. Six industries reported decline. The Real Estate, Rental & Leasing industry reported gains in business activity and new orders and no change in employment.

Oil retreated to $118 a barrel today, a low not seen since its July 11 peak of $147 per barrel.
Consumers have reduced demand in response to high prices, and this is now playing out in the markets as prices adjust.

The unchanged Federal Funds rate should help keep mortgage rates stable while long-run inflationary expectations are contained.
The moderation in the price of oil increases NAR's GDP forecast for the second half of the year.
After January's low point of 44.6, the ISM-NMI has hovered slightly above or below 50 indicating fairly flat growth. While this is not normally something to be excited about, analysts had predicted a steeper decline, so today's reading coupled with the decline in oil prices was greeted as positive news.

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