Slowdown

Housing woes dragged the annualized GDP growth rate down to 1.6% for the third quarter, which isn’t fast enough to maintain a stable rate of unemployment.
The White House says, “Don’t worry. Be happy.”

Residential construction has been driving what’s left of the recovery. When housing slumps, GDP growth takes a hit.

Reuters

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.

Author: Mark Kleiman

Professor of Public Policy at the NYU Marron Institute for Urban Management and editor of the Journal of Drug Policy Analysis. Teaches about the methods of policy analysis about drug abuse control and crime control policy, working out the implications of two principles: that swift and certain sanctions don't have to be severe to be effective, and that well-designed threats usually don't have to be carried out. Books: Drugs and Drug Policy: What Everyone Needs to Know (with Jonathan Caulkins and Angela Hawken) When Brute Force Fails: How to Have Less Crime and Less Punishment (Princeton, 2009; named one of the "books of the year" by The Economist Against Excess: Drug Policy for Results (Basic, 1993) Marijuana: Costs of Abuse, Costs of Control (Greenwood, 1989) UCLA Homepage Curriculum Vitae Contact: Markarkleiman-at-gmail.com

4 thoughts on “Slowdown”

  1. "The WYle E. Coyote don't-look-down school of macroeconomics…"
    Mark, you've outdone yourself. That's fabulous.

  2. The long term growth rate of the US economy is 3.5%.
    In the five, going on six years the Bush administration has been in office the US
    has experienced only one year of above trend growth.

  3. My favorite bit of spin from the Shrub's administration was last year's sharp increase in home purchases. They omitted the fact that 4 in 10 of those home purchases were second homes for the rich people who just continue to get richer.

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