Tags: Housing | Slowdown | Won't | Drag | U.S. | Economy

Housing Slowdown Won't Drag U.S. Economy

Thursday, 28 September 2006 12:00 AM

WASHINGTON -- Weakness in the U.S. housing market is not spilling over into other parts of the economy, which should enjoy growth this year similar to that seen in 2005, a senior White House adviser said Thursday.

"It appears that the housing slowdown will be a significant drag on third-quarter growth," Edward Lazear, chairman of the White House Council of Economic Advisers, told the Senate Budget Committee.

"It is important to note, however, that the weakness in the housing sector does not seem to be spreading to other sectors of the economy," he added.

The U.S. economy grew at a swift 5.6 percent annual pace in the first quarter, but slowed in the second quarter to a 2.6 percent rate as a downturn in home building deepened. Like the White House, private economists also look for even slower growth in third quarter gross domestic product.

"Although it now appears GDP growth in the current quarter will be significantly slower than in the first half of the year, the current forecast indicates that growth in 2006 will remain about the same as growth last year, and the economy should continue to grow at a robust pace in 2007 and beyond," Lazear said.

In its last forecast in June, the Bush administration had said it expected the economy to grow 3.6 percent this year after last year's 3.2 percent expansion. Lazear's testimony suggested some scaling back in those expectations.

The presidential adviser said the U.S. job market remained strong and that continued employment growth in an environment where the jobless rate was already at a low 4.7 percent suggested labor market "tightness will be reflected in more wage growth as we move into coming months."

The pinch of high energy costs has helped fuel a malaise about the economy among American workers, despite the low unemployment rate. Democrats are hoping to capitalize on those feelings in congressional elections in November.

Gasoline prices, however, have come down sharply in recent weeks and the White House hopes this might blunt the pain Americans have been feeling.

Lazear said the gasoline price drop meant workers should finally begin to pull ahead of an energy-led inflation.

"High nominal wage growth such as we have seen in the recent past will translate into real additional buying power for the typical American worker," Lazear said, adding that lower energy prices were a "positive force" for growth.

"Hourly compensation growth has started to pick up, and if these trends continue, the remainder of 2006 will enjoy real hourly compensation gains," he said.

Lazear said rising worker compensation would bring about a slower pace of profit growth. But he said profit gains should just return to "normal levels" and businesses should still be in good shape to fund expansionary investments.

(c) Reuters 2006. All rights reserved.

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WASHINGTON -- Weakness in the U.S. housing market is not spilling over into other parts of the economy, which should enjoy growth this year similar to that seen in 2005, a senior White House adviser said Thursday. "It appears that the housing slowdown will be a...
Housing,Slowdown,Won't,Drag,U.S.,Economy
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2006-00-28
Thursday, 28 September 2006 12:00 AM
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