[Marxism] Housing slump deepens

[Louis Proyect]

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 
economic strength.

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 
weakening economy.

"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."