The latest report on the state of the economy was better than expected. The first quarter grew by an anemic 0.6 percent. That's both good and bad news for housing.

The growth, says the Commerce Department, was largely due to inventory building. Sales of domestic product fell 0.2 percent, and domestic sales were worse at 0.4 percent. These figures recall declines from the recession of 1991, and suggest that next quarter could be even softer.

That had all eyes on the Federal Open Market Committee meeting yesterday and its announced quarter point rate cut. Short-term rates are the rates at which banks can borrow overnight money from each other or from the Fed itself. They generally result in lower borrowing rates for consumers. Most economy watchers agreed that the Fed is coming to the end of its rate-cutting cycle, so the quarter point cut was expected.

One reason rate cuts are slowing to a stop is the rise in inflation, driven largely by fuel prices which impact shipping. Higher costs are passed on to the consumer.

Squeezed by doubling gas and grocery prices since 2002, consumers are cutting back on non-essentials which largely drive the American economy. That's right -- we're a luxury-loving society. Just read the financial advice from most advisors and the first thing they tell you is to give up your daily Starbucks. That tells you how embarrassingly rich this country really is. Giving up $3 coffee isn't pain.

We are spoiled rotten as a nation, and these near-record low short-term rates are doing nothing to encourage financial responsibility in the consumer. Why should we save money when consumer credit is so cheap?

That tells us two things -- we have a long way to go before the economy feels real pain and it will be ridiculously easy to get consumers to reload their credit debt.

Buoyed by their tax refund and economic stimulus checks, consumers will want to experience the "wealth effect" again before they blow the money on more non-essential goods. After that, it may take some time for the economy to recover because the Fed will be out of options, government stimulus packages will be finished, and consumers will be left facing even more debt than they have now.

After all, withdrawing from any addiction is difficult, particularly non-essential spending.

Published: May 1, 2008

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Blanche Evans is the award-winning senior editor of Realty Times, the Internet's leading independent real estate news service. She is featured daily on the Realty Times Video Network in the "Realty Viewpoint" segment. Blanche has been named one of the "25 Most Influential People In Real Estate" by REALTOR Magazine, and has been twice recognized as a "notable." In 2005, she was named "Top Reporter Covering the NAR" by Delahaye-Bacon's. Blanche is a renowned author of five real estate books. Her newest, Bubbles, Booms and Busts: Make Money In Any Real Estate Market, McGraw-Hill, was rave-reviewed by The New York Times. She was also selected from hundreds of real estate experts to contribute to Donald Trump's book, Trump: The Best Real Estate Advice I Ever Received: 100 Top Experts Share Their Strategies, Rutledge Hill Press, and is featured on page 68. Order Now Review - Honors In 2006, Blanche was selected among scores of candidates to author two consumer real estate guidebooks for the National Association of Realtors: The NAR Guide to Home Buying, and The NAR Guide to Home Selling, Wiley & Sons. She is currently planning two new books for the NAR and its members.       Known for her keen insight into real estate industry issues and for her ability to make complex subjects easy to understand, Blanche is a sought-after keynote and continuing education speaker. Real estate organizations from MLSs, to brokerages, to franchisors, to associations hire her to provide up-to-the-minute analysis of real estate industry news and advice on how to improve revenues. Her passionate delivery, peppered with stinging wit, is a huge hit with audiences and fans. Don Klein, CEO Greater Nashville Association of Realtors, Blanche Evans, Richard Courtney, president 2007, GRAR "The GNAR membership meeting last week featured Blanche Evans as the keynote speaker. Her comments and insights resonated extremely well with those in attendance and we have had many requests for copies of her PowerPoint Presentation. She was a terrific part of the membership meeting and convention program!" - Don Klein, CEO Greater Nashville Association of Realtors Coverage from WSMV, Nashville - 8-14-2007 That Interview Guy - Get Inside The Head Of Today's Generation 2007 AE Institute Session - To purchase 2006 AE Institute Session - Parts 1 2 3 4 5 6 7 8 9 HouseValues Mastermind call - Parts 1 2 Blanche's fireside chat with Jeremy Conaway, HAR - Click here. To contact Blanche, email her at . For more articles by Blanche, click here.