White House lowers ’08 economic forecast

The housing market decline was larger than federal
forecasters expected.

WASHINGTON (AP) — The deteriorating housing market forced the White House to lower its projection for economic growth next year and raise its forecast for unemployment. Inflation was expected to moderate.

The new forecast came as the Commerce Department reported Thursday that the economy barreled ahead in the summer at a 4.9 percent growth rate, the strongest showing in four years. That impressive performance, however, wasn’t expected to last through the current quarter, given the strains of the housing slump and credit crunch — problems likely to weigh on individuals and businesses alike.

Under the administration’s new forecast, the gross domestic product, or GDP, will grow by 2.7 percent next year. Its old projection called for a stronger, 3.1 percent increase.

“The housing market decline has been more significant than we expected,” said Edward Lazear, chairman of the White House Council of Economic Advisers.

The more pronounced housing slump — along with the expectation that problems will persist into next year — was a big factor in the administration’s downgrade of its economic growth forecast for 2008.

In the third quarter alone, builders slashed investment in housing projects by a whopping 19.7 percent, on an annualized basis, the biggest cut in a year. That lopped just over a full percentage point off GDP from July through September.

Lazear said he expects the drag from housing on the economy to continue “at least through the first half of 2008.” He also noted that the credit situation seems to have gotten “a bit worse again” in the past few weeks.

The pickup in overall national economic activity in the third-quarter — while a testament to the economy’s resilience— didn’t change the picture forming in the current October-to-December quarter. That scenario is somewhat grim, with indications the economy will lose considerable steam. Growth is expected to clock in at a pace of just 1.5 percent or less in the final three months of this year.

“Turn out the lights, the party is over,” said Richard Yamarone of Argus Research. “Fourth quarter growth is not going to be anywhere near the third-quarter’s pace. It is going to be miserable, but we’ll escape a recession.”

GDP is the value of all goods and services produced within the United States and is the best measure of the country’s economic health.