White House Lowers '08 Economic Forecast
Thursday November 29, 12:09 pm ET
By Jeannine Aversa, AP Economics Writer
White House Lowers Economic Forecast for 2008, Says Unemployment Will Nudge Higher
WASHINGTON (AP) -- The White House on Thursday lowered its forecast for economic growth for next year and said unemployment will likely rise as the housing slump and tight credit stunt business expansion.
Under the administration's new forecast, 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," Edward Lazear, chairman of the White House's Council of Economic Advisers, told reporters in a conference call. 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.
The economy has been resilient for much of this year. Economic growth barreled ahead in the summer at a 4.9 percent pace, the Commerce Department reported Thursday. The performance was the strongest in four years.
But that strength isn't expected to last through the current quarter as the housing and credit problems take their toll. Growth is expected to slow to a pace of just 1.5 percent or less in the final three months of this year. 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.
Lazear said he expects the drag from housing on the economy to continue "at least through the first half of 2008."
With economic growth slowing, the unemployment rate is projected to move up to 4.9 percent next year. That's up from a previous forecast of a 4.7 percent jobless rate but still would be considered fairly low by historical standards. The unemployment rate last year dipped to 4.6 percent, a six-year low.
Inflation, however, should improve. The White House expects consumer prices to increase by 2.1 percent next year, a moderation from a previous forecast of a 2.5 percent rise. That's encouraging news as oil prices have marched past $92 a barrel.
"While the difficulties in housing and credit markets and the effects of high energy prices will extract a penalty from growth, the U.S. economy has many strengths, and I expect the expansion to continue," said Treasury Secretary Henry Paulson.
The odds of a recession have grown this year. But the Bush administration, Federal Reserve officials and others remain hopeful that one can be avoided.
The big worry for economists is that consumers and businesses will cut back on spending and investing, sending the economic growth into a tailspin. Spending by consumers and businesses is the lifeblood of the country's economic activity.
The White House's economic forecasts are issued twice a year. The projections were developed mainly by a team from the Council of Economic Advisers, the Treasury Department and the Office of Management and Budget. The administration's projections are in line with those offered by private analysts.
For this year, the White House expects the economy to grow by 2.7 percent, helped by the strong third-quarter performance. The new projection for growth this year is up from a previous estimate of 2.3 percent. The economy grew by 2.6 percent last year, as measured from the fourth quarter of the previous year. All the White House's projections are based on the fourth quarter of one year compared with the fourth quarter of the previous year.