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The White House on Tuesday (Nov. 21) lowered its forecast for economic growth this year and next, reflecting the drag from the housing slump.
The Associated Press reported that 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 (GDP) will grow by 3.1%, 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% 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% — also lower than its previous forecast for 3.3% growth. And, in 2008, the White House is projecting a 3.1% 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.
On the inflation front, consumer prices this year are now projected to rise by 2.3%, a sizable moderation from the administration’s earlier forecast for a 3% 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, however, are expected to tick up 2.6% in both 2007 and in 2008, the White House said. That’s a bit higher than its old forecast for a 2.4% 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.