Bush Report: Housing Will Slow Gradually

The highflying housing market should make a safe landing by gradually losing altitude, the White House suggested Monday in its annual economic report to Congress.

Also, the report said, the economy is near full employment and inflation should moderate this year.

“A gradual slowing of homebuilding appears more likely than a sharp drop because the elevated level of house prices will sustain home building as a profitable enterprise for some time,” the report asserted.

House prices, which have risen rapidly, will probably see slower growth this year, Matthew Slaughter, a member of the White House’s Council of Economic Advisers, said during a briefing on the report.

Even with a housing slowdown, the economy is expected to log respectable growth this year, according to the White House’s projections.

President Bush’s report predicts that the economy will grow 3.4% from the fourth quarter of last year to the fourth quarter of this year. In 2007, the economy should register another solid year, growing 3.3%, the report said.

The U.S. unemployment rate is near historic lows and the economy close to full employment, Slaughter said. He said labor force participation probably peaked in the 1997-2000 boom and would decline as the population aged.

“I think the United States does seem to be near full employment based on the traditional economic definition,” Slaughter said.

“There’s no law of physics that says what the exact equilibrium of unemployment is at which we’re at full employment, but in January the unemployment rate was reported to be 4.7%, which is quite low by historic standards,” he said.

The drop in the unemployment rate in January to a 4 1/2 -year low surprised most economists and sparked inflation concerns, as analysts speculated that employers would have to bid up wages to attract increasingly scarce job applicants.

The unemployment rate, which averaged 5.1% in 2005, should average 5% this year and hold steady at that rate next year, according to the White House’s forecast.

Inflation, as measured by the consumer price index, also should moderate this year. Consumer prices, which rose 3.4% in 2005 -- the most in five years -- are expected to go up by no more than 2.4% this year and next year, the report said.

Addressing the government’s balance sheets, Bush said the administration remained on track to cut the federal budget deficit in half by 2009. The president, who is calling on Congress to make his tax cuts permanent, would seek to slash the deficit by cutting spending.

The government ran up a $319-billion deficit last year. The administration is estimating the deficit for this year will hit a record in dollar terms of $423 billion, surpassing the record set in 2004. The worsening picture reflects increased spending for hurricane relief and the costs of the wars in Iraq and Afghanistan, the administration says.

The president also said he would continue to push for trade deals that would make it easier for U.S. companies to sell their goods on global markets.