Former Federal Reserve Chairman Alan Greenspan said the U.S. economy will probably shrink “significantly” this quarter and housing prices are likely to keep declining.
“There’s no question gross domestic product in the United States for the fourth quarter is going to be down significantly,” Greenspan said in Toronto, making his first public comments since Americans elected Barack Obama president and gave Democrats larger majorities in Congress. “We’ve still got 5 to 10 percentage points to fall” in home prices, he said.
A government report Friday showed the U.S. unemployment rate rose to the highest level since 1994 as companies slashed payrolls, setting the stage for the steepest economic decline in decades and a tough start for Obama’s presidency. The housing industry is in the worst contraction in 25 years, and some economists put it at the root of the financial crisis.
“It’s clear, just looking at the trend in monthly gross domestic product, it’s sliding at an over 3 percent annual rate,” he said. “Early data for October suggest that it’s even more severe than that.”
The U.S. economy shrank at a 0.3 percent annual rate last quarter, the most since the 2001 recession, the Commerce Department reported recently.
Goldman Sachs Group Inc. analysts downgraded their projections for the economy after Friday’s report, foreseeing a 3.5 percent contraction in the fourth quarter, the biggest since 1982.
A month ago, Greenspan wrote in an article that the U.S. housing market will recover in the first half of 2009.
