Washington – U.S. economic growth will slow in 2007 compared with this year, reflecting a weaker housing market, and inflation will increase, President Bush’s economic advisers said in their semiannual forecast.
The gross domestic product will grow 2.9 percent next year, down from 3.1 percent this year, and slower than the 3.6 percent growth forecast in June, the Council of Economic Advisers said.
Consumer prices are forecast to rise 2.6 percent next year, up from a 2.3 percent increase this year. That’s less than the June 8 forecast for a 3.0 percent inflation rate and is still within the historic averages, said Edward Lazear, chairman of the White House Council of Economic Advisers.
“The updated forecast projects somewhat slower economic growth” than was predicted in June, the council said in a joint statement with the Treasury and the Office of Management and Budget. “The revisions reflect a slower-than-expected housing sector while growth in other parts of the economy remains strong.”
The administration’s GDP forecast for next year is more optimistic than private-sector estimates. The Nov. 10 median forecast issued by the Blue Chip Economic Indicators was for 2.5 percent growth in 2007 and 3.3 percent this year.
“All the signs are for continued strong growth,” Lazear said in a conference call with reporters. The higher inflation forecast for next year “is not especially significant” when energy prices are down from their peak, he said.
A 20 percent drop in oil prices since Aug. 1 has helped encourage consumers to keep spending, even as the housing market slumps. Federal Reserve policymakers said last month that inflation is a bigger worry than the slowing economy.
The Fed has left its target interest rate at 5.25 percent at the last three policy meetings after raising the rate 17 times since June 2004 to curb inflation.
Lazear said the housing market “has been hit, I think, harder than most of us expected,” though it hasn’t triggered widespread layoffs in the construction industry. “I don’t believe it’s going to transmit to the rest of the economy,” he said.
The slump may bottom out in the next quarter or two, but that’s “still up for grabs.”
