- The Washington Times - Thursday, December 21, 2006


Economic growth slowed to a 2 percent pace in the late summer, more sluggish than previously thought, as the real-estate bust weighed on overall business activity.

The new reading on gross domestic product for the July-to-September quarter marked a slight downgrade from the 2.2 percent annual rate estimated a month ago, the Commerce Department reported yesterday.

The economy has been losing momentum all year. The main culprit behind the third quarter’s slowdown was the deepening housing slump.

Investment in home building was slashed at an 18.7 percent rate — even more than previously estimated — and was the largest cut in 15 years. That shaved 1.2 percentage points off third-quarter growth, the most in nearly 25 years.

Economists were expecting the government’s old GDP estimate of 2.2 percent growth for the third quarter to hold.

GDP measures the value of all goods and services produced within the United States and is the best barometer of the country’s economic health.

In other economic news, the number of newly laid-off workers signing up for unemployment benefits rose by 9,000 to 315,000 last week, the Labor Department reported. That was in line with economists’ projections.

The Conference Board, meanwhile, reported that a gauge of future economic activity advanced 0.1 percent in November, suggesting that the economy will continue to expand in the coming months. That showing also was in line with analysts’ expectations.

The new GDP figure underscores just how much speed the economy has lost this year as the crumbling housing market, the toll of the Federal Reserve’s two-year credit-tightening campaign and once-surging energy prices have crimped economic activity.

In the first three months of this year, the economy grew at a hot 5.6 percent pace, the strongest spurt in 21/2 years. However, in the second quarter, growth slowed to a 2.6 percent pace as galloping energy prices and the impact of higher borrowing costs turned consumers and businesses cautious.

Many economists say the economy stayed lethargic in the current October-to-December period. Forecasts range from a pace of about 1.7 percent to 2.5 percent.

Even with expectations that economic activity will continue to be subpar in the months ahead, most analysts don’t expect the economy to fall into recession.

In the third quarter, consumers boosted their spending at a 2.8 percent pace. That was slightly less than estimated and was a factor in the third quarter GDP figure being marked down from last month’s estimate. Still, consumers in the third quarter spent at a slightly better pace than they did in the second quarter.

Business spending on equipment and software, meanwhile, rose at an annual rate of 7.7 percent, stronger than previously thought. Investment in new plants and buildings increased at a brisk pace of 15.7 percent in the third quarter, less than estimated a month ago.

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