White House lowers economic growth projections amid housing slump
Tuesday, November 21st 2006, 2:26 pm
By: News On 6
WASHINGTON (AP) The White House on Tuesday lowered its forecast for economic growth this year and next, reflecting the drag from the housing slump.
Even with the downgrade, the Bush administration is predicting that the unemployment rate will turn out to be slightly lower than previously thought.
Under the administration's new forecast, gross domestic product will grow by 3.1 percent, as measured from the fourth quarter of last year to the fourth quarter of this year. That's down considerably from a projection of 3.6 percent in early June.
Still, the new forecast would represent decent growth, especially given the strain on overall economic activity from the housing slump, and would match last year's performance.
``The housing market ... it has been hit, I think, harder than most of us had expected. Most forecasters were expecting a slower decline,'' Edward Lazear, chairman of the White House's Council of Economic Advisers, told reporters. The economy is weathering that housing slump fairly well and is in ``really good shape,'' he said.
GDP measures the value of all goods and services produced within the United States and is the best measure of the country's economic standing.
In 2007, the White House is now expecting the economy to grow by 2.9 percent, also lower than its previous forecast for 3.3 percent growth. And, in 2008, the White House is projecting a 3.1 percent growth rate, slightly less than its old forecast for a 3.2 percent growth rate.
``The economic forecast clearly reflects the fact that the U.S. economy is moderating to more sustainable growth levels, firmer labor markets and steady inflation rates,'' said Treasury Secretary Henry Paulson.
The nation's unemployment rate, which averaged 5.1 percent last year, is expected to dip to 4.6 percent this year, a slight improvement from the administration's previous forecast for an unemployment rate of 4.7 percent this year.
For 2007, the administration expects the unemployment rate to hold steady at 4.6 percent and then edge up to 4.8 percent in 2008.
On the inflation front, consumer prices this year are now projected to rise by 2.3 percent, a sizable moderation from the administration's earlier forecast for a 3 percent increase. The expected improvement comes as energy prices, which had surged to record highs in the early summer, have since calmed down, easing some inflation pressures throughout the economy.
Consumer prices are expected to tick up 2.6 percent in both 2007 and in 2008, the White House said. That's a bit higher than its old forecast for a 2.4 percent rise in consumer prices in both 2007 and 2008.
Nonetheless, Lazear was confident that workers' wages, adjusted for inflation, will continue to get a boost through next year. After a period of sluggish wage gains, workers in recent months have started to see an improvement as lower prices for gasoline and other goods have allowed their paychecks to go further.
``I would anticipate that we will have positive and strongly positive real wage growth though next year,'' he said.
On other issues, Lazear indicated that there is a willingness in the White House to work with the incoming Democrat-controlled Congress on efforts to raise the federal minimum wage from $5.15 to $7.25. That's a top issue for Democrats when they convene in January.
``We have heard calls by Congress for increases in the minimum wage, and my sense is that this is not necessarily inconsistent with the president's view on this and that there is some room for us to work on something together going forward,'' Lazear said.
The White House's economic forecasts are issued twice a year. The projections were developed mainly by a team from the Council of Economic Advisers, the Treasury Department and the Office of Management and Budget.
The administration's economic projections are in line with those of private analysts. ``All of those sound fairly reasonable,'' said Carl Tannenbaum, chief economist at LaSalle Bank and president of the National Association for Business Economics. ``The patterns seem to be consistent with the impact of the housing correction, certainly one of the factors that is dampening economic activity.''
The Federal Reserve's rate increases also have figured into the slower activity. The Fed wants the economy to slow sufficiently to thwart inflation but not so much as to tip into recession. The central bank had boosted rates 17 times since June 2004. Since August, however, it has held rates steady.