White House cuts economic growth forecast

Related

Home builders slam on the brakes

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UPDATE 1
Tue Nov 21, 2006 2:44 PM ET

(Recasts, adds details and quotes throughout, adds byline)

By Joanne Morrison

WASHINGTON, Nov 21 (Reuters) - A slowdown in the housing market drove the White House on Tuesday to lower its forecast for U.S. economic growth for this year and next.

"The housing market, as you know. has been hit harder than most of us had expected," Edward Lazear, chairman of the White House Council of Economic Advisers, said in a conference call to reporters, predicting that the worst of that decline could be over by the first quarter if not already.

"Whether it's bottomed out now is still up for grabs," he said, adding that housing weakness had been contained to that sector and was not seen creating major problems for the overall economy.

The Bush administration forecast that real gross domestic product growth this year will be 3.1 percent, down from an earlier forecast in June of 3.6 percent. For 2007, the administration projected GDP growth of 2.9 percent, down from the more upbeat 3.3 percent earlier GDP growth forecast.

This is close to the consensus of a panel of forecasters surveyed by the Blue Chip Economic Indicators newsletter for growth of 3 percent this year and 2.8 percent in 2007. The Blue Chip forecasts are often cited by economists as a benchmark.

"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 in a joint release from the President's Council of Economic Advisers, the Treasury Department and the Office of Management and Budget.

The administration's forecast for inflation this year improved in this latest forecast, as energy prices have fallen sharply. The Consumer Price Index, the government's key measure of prices consumers pay, is expected to expand by 2.3 percent in 2006, less than the 3.0 percent increase predicted earlier.

"Going forward, I think things look pretty good and we hope to be in good shape on the price front," Lazear said, noting that lower energy prices indeed helped pull down the forecast for inflation for this year.

In 2007, the CPI is expected to advance by 2.6 percent, slightly more than the 2.4 percent advance earlier projected.

Despite slower growth expectations, the administration projects a stronger job picture, with the unemployment rate hitting 4.6 percent this year and next.

That's lower than the 4.7 percent and 4.8 percent unemployment rates earlier projected for this year and next, respectively.

"This is a very tight labor market," Lazear said.

http://today.reuters.com/news/articleinvesting.aspx?type=economicNews&storyID=2006-11-21T194404Z_01_N21171213_RTRIDST_0_BUSH-FORECASTS-GROWTH-UPDATE-1.XML