U.S. growth forecast is reduced
The White House on Tuesday lowered its forecast for economic growth for this year and 2007, 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%. 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,” Edward Lazear, chairman of the White House’s Council of Economic Advisors, told reporters. “Most forecasters were expecting a slower decline.”
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% -- lower than its previous forecast of 3.3%. The White House is projecting a 3.1% growth rate for 2008, slightly less than its previous forecast of 3.2% growth.
“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,” Treasury Secretary Henry M. Paulson Jr. said.
The nation’s unemployment rate, which averaged 5.1% last year, is expected to drop to 4.6% this year -- a slight improvement from the administration’s previous forecast of 4.7% this year.
The administration expects the jobless rate to hold steady at 4.6% in 2007 and then edge up to 4.8% in 2008.
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 of a 3% increase.
The expected price 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% in both 2007 and 2008, the White House said. That’s a bit higher than its previous forecast of a 2.4% rise each year.
Nonetheless, Lazear was confident that workers’ wages, adjusted for inflation, would 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 through next year,” he said.
On other issues, Lazear indicated that there was 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 Congress convenes in January.
