White House Revises GDP Outlook: 2007 Up, 2008 Down
The White House lowered its U.S. economic growth forecast for 2008 Thursday because of trouble in the housing and credit markets, but said the economy remained resilient and a six-year expansion would continue.
In its twice-yearly forecast, which will be incorporated in the Bush administration's fiscal 2009 budget proposal due early next year, the White House said it now expected real gross domestic product to grow 2.7 percent in 2008, down from a June forecast for 3.1 percent growth.
The forecast was still above Federal Reserve policymakers' central projection of 1.8 percent to 2.5 percent real GDP growth for 2008. Real GDP is the rate of growth of the economy after subtracting inflation.
The White House raised its 2007 real GDP forecast to 2.7 percent from 2.3 percent, reflecting surprisingly strong third-quarter growth.
"While the difficulties in housing and credit markets and the effects of high energy prices will extract a penalty from growth, the U.S. economy has many strengths and I expect the expansion to continue," U.S. Treasury Secretary Henry Paulson said in a statement.
On a conference call with reporters after the forecasts were released, White House economic adviser Edward Lazear said a "more pronounced" housing downturn contributed to the lowered expectations for 2008.
Lazear also said he expected housing to hurt GDP at least through the first half of the year.
Private economists have been ratcheting down their economic growth forecasts in recent months as the slumping housing market and ensuing credit crunch threaten to slow consumer and business spending.
Allan Hubbard, the top White House economic adviser, said this week that U.S. recession risks had increased, although he put the chances at less than 50-50. Hubbard announced his resignation Wednesday.
The White House acknowledged that rising food and energy prices have pushed up inflation, and raised its 2007 consumer price index forecast to 3.9 percent from 3.2 percent.
However, the administration expects inflation to cool next year. For 2008, they estimated CPI at 2.1 percent, down from their prior forecast of 2.5 percent.