[Marxism] Housing slump deepens
lnp3 at panix.com
Sat Oct 28 08:53:41 MDT 2006
Housing Slump Slows Economy
Growth Far Below Pace Early in Year
By Nell Henderson
Washington Post Staff Writer
Saturday, October 28, 2006; A01
The cooling housing market sent a chill through the economy in the
third quarter, helping to slow growth to its weakest pace in more
than three years, the government said yesterday.
The nation's gross domestic product, the value of all goods and
services produced, expanded at a sluggish 1.6 percent annual rate in
the quarter, down from a moderate 2.6 percent pace in the second
quarter, the Commerce Department reported. In the first three months
of the year, the economy grew at a sizzling 5.6 percent annual rate.
With less than two weeks to go before the midterm congressional
elections, the report instantly became campaign ammunition. Democrats
emphasized the slowdown while Republicans highlighted signs of
Financial analysts were split on whether the report reflected an
economy poised for a rebound or headed into a prolonged slump. The
debate turns on differing forecasts of how the housing market will
affect consumer spending.
The sharp slowdown during the year resulted from a combination of
soaring energy prices, rising interest rates and plunging home
construction and sales. Oil prices and the cost of a 30-year
fixed-rate mortgage peaked in July, and gasoline averaged around $3 a
gallon for much of the summer.
Home building plunged at a 17.4 percent annual rate in the third
quarter, the steepest fall in four consecutive quarters of declines,
the report showed.
"A downturn in the housing market packed a wicked punch for the U.S.
economy in the third quarter, but it was not a knockout blow," said
Stuart G. Hoffman, chief economist of PNC Financial Services Group.
Optimists note that some forces behind the slowdown have eased. The
Federal Reserve has held short-term interest rates steady since June,
and mortgage rates have fallen since July. Gaso line and other fuel
prices have tumbled since mid-August, putting more cash into
consumers' pockets to spend on other things.
Both consumer spending and business investment outside of housing
rose faster in the third quarter than in the second, and unemployment
remains low, encouraging many analysts to predict that the economy
will regain momentum in the coming months.
"The recent slowdown will prove temporary," said James W. Paulsen,
chief investment strategist at Wells Capital Management. "Outside of
the housing and auto industries, economic growth remains strong and
has actually been accelerating."
Other observers were more pessimistic, expecting the housing slump to
deepen and continue into next year. That would push up unemployment
and prompt consumers to rein in spending, holding economic growth to
a crawl through 2007, they said.
"The correction in the housing sector still has a long way to go and
the full impact on consumption won't become apparent until next
year," said Paul Ashworth, senior U.S. economist for Capital Economics Ltd.
The divergent forecasts explain why the Federal Reserve left its
benchmark short-term rate unchanged Wednesday. Central bank
policymakers generally share the more upbeat outlook but see the
possibility that the economy could weaken more than they expect.
The Commerce Department report also supported the Fed's forecast that
slowing economic growth will gradually weaken inflation. Consumer
prices, excluding food and energy prices, rose at a 2.3 percent
annual rate in the third quarter, according to a Commerce Department
price index. That's higher than many central bank policymakers prefer
but lower than the 2.7 percent pace of the second quarter.
Heading into the final campaign stretch, President Bush and other
Republicans have emphasized the good economic news, such as the low
4.6 percent unemployment rate, rising incomes and falling oil prices.
"It is a healthy economy," Treasury Secretary Henry M. Paulson said
yesterday during an interview on CNBC. "The economy is creating new
jobs . . . there has a been a real increase in wages."
Democrats countered that the Commerce Department figures reflect a
"Once again, the Bush economy is going in the wrong direction," said
Rep. Carolyn B. Maloney (N.Y), the senior House Democrat on
Congress's Joint Economic Committee. "An economic recovery that never
benefited working Americans in the first place now has slowed to a
crawl. President Bush's economic happy talk is betrayed by the facts
on the ground and the stats released today."
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