Residential construction has been driving what’s left of the recovery. When housing slumps, GDP growth takes a hit.
WASHINGTON, Oct 27 (Reuters) – A slumping housing sector helped slow U.S. economic growth in the third quarter to its weakest pace in more than three years, the Commerce Department reported on Friday, leading financial markets to raise bets on interest-rate cuts next year.
Gross domestic product, which measures total economic activity within U.S. borders, expanded at a 1.6 percent annual rate during the third quarter, down from 2.6 percent in the second quarter for the slowest advance since 1.2 percent in the first quarter of 2003.
Consumers showed no sign that weakening housing prices were dampening their spirits, instead boosting their spending in a sign that the slowdown was unlikely to worsen.
Third-quarter GDP growth was well below Wall Street analysts’ forecasts for a 2.2 percent rate of growth and reflected a range of influences that combined to slow the economy.
It’s OK, though. According the Tony Snow, the unexpectedly low rate of GDP growth was something “everyone expected.” No one seems to have asked him why, if it was expected, no one in the Administration actually, you know, predicted it. I guess they were worried that telling the country the truth might encourage the terrorists, or at least the Democrats.
Note the optimism of the Reuters reporter, which seems to be the product of the Wile E. Coyote don’t-look-down school of macroeconomics: since consumers are continuing to borrow against the disappearing equity in their homes, everything’s going to be all right. What happens when those consumers can’t borrow any more, and when the people who aren’t getting paychecks for not building the houses that can’t be sold have to cut back on their consumption, isn’t mentioned.