Housing Market Continues to Lag

The White House has lowered its economic growth forecast for 2006 and 2007 reflecting the drag from the housing slump. However, the Bush administration is predicting the unemployment rate to remain slightly lower than previously thought.

The administration’s new forecast says gross domestic product will grow by 3.1% as measured from the fourth quarter of 2005 to the fourth quarter of 2006. GDP is the best measure of the country’s economic standing as it measures the value of all goods and services produced within the United States. The new forecast is down significantly from the previous projection of 3.6% in June. The new forecast still represents a decent growth, given the strain on overall economic activity from the housing slump.

According to Edward Lazear, chairman of the White House’s Council of Economic Advisers, the housing market has been hit harder than expected. He thinks the economy is weathering that housing slump fairly well and is in “really good shape”.

The White House is now expecting the economy to grow by 2.9% in 2007. The previous forecast was 3.3% growth rate in 2007. In 2008, the White House is projecting a 3.1% growth rate, which is slightly less than its old forecast for a 3.2% growth rate.

The nation’s unemployment rate is expected to drop to 4.6% in 2006, which is a slight improvement from the administration’s previous forecast of 4.7%. The unemployment rate averaged 5.1% last year.

According to White House, consumer prices are expected to tick up 2.6% in both 2007 and 2008. Previous forecast of White House was 2% rise in consumer prices in 2007 and 2008. However, Lazear was convinced that worker’s wages, adjusted for inflation, would continue to increase through next year. In recent months, workers have started to see an improvement after a period of sluggish wage gains, as lower prices for gasoline and other goods have allowed their paychecks to go further. Lazear said he would anticipate strongly positive real wage growth through 2007.