President Bush Advisers Reduce Economic Growth Forecast for 2008 to 2.7 Percent

President George W. Bush’s economic advisers reduced their outlook for U.S. economic growth in 2008 to 2.7 percent and forecast higher unemployment, reflecting turmoil in the credit markets and housing.

The semi-annual forecast from the White House Council of Economic Advisers reduced the growth expected next year from a 3.1 percent rate projected in June. Job growth will be weaker and the unemployment rate will rise to 4.9 percent, compared with 4.7 percent previously forecast, the advisers said.

The report raised the growth forecast for 2007 to 2.7 percent, up from 2.3 percent in the earlier report. Strong exports and low inflation prompted the revision for this year, the forecast released today in Washington.

Edward Lazear, chairman of the Council of Economic Advisers, said the slump in housing will continue to have an impact on growth “over the next couple of quarters.”

“The housing market decline has been more significant than we expected,” he said in a conference call.

Treasury Secretary Henry Paulson said in a statement that while the effects of the housing slowdown, tightening credit markets and higher energy prices “will extract a penalty from growth, the U.S. economy has many strengths and I expect the expansion to continue.”

Election Year

The slower growth will be coming in an election year in which the presidency will be open and Republicans and Democrats are vying for control of Congress.

Michael Darda, chief economist at MKM Partners LLC in Greenwich, Connecticut, said the forecast won’t provide much fodder for the campaigns.

“It’s a weakening of the economy but it’s actually a fairly good growth rate,” Darda said. He called it “Goldilocks-plus” because the growth rate won’t stoke fears of inflation and may signal “decent profits” next year.

“The best outcome for Democrats is the economy hits the skids and the labor market really loosens, but I don’t think that’s going to happen,” Darda said.

The administration forecast weaker job growth next year, predicting the monthly nonfarm payrolls will increase an average of 109,000, 16 percent lower than the White House forecast five months ago.

So far this year, monthly nonfarm payrolls in the U.S. have risen an average of 125,000 a month, lower than the average in 2006 of 189,000, according to Labor Department figures.

Economists Forecast

The administration’s gross domestic product forecast for next year compares with a median growth rate forecast at 2.4 percent according to 70 economists surveyed by Bloomberg News on Nov. 9.

The economy expanded at an annual rate of 4.9 percent in the third quarter of this year, the most in four years, according to revised data today from the Commerce Department in Washington. The pace is a percentage point stronger than estimated last month and follows a 3.8 percent rate in the second quarter.

Lazear said credit market tightening is “a concern” and reached a head in August. “It seems to have gotten a bit worse in the past week or two,” he said.

Still, the crunch hasn’t made its way into the mainstream economy, he said. “We’re not seeing business investment contract,” and the labor market is strong, with disposable income growing, he said.

While the median price of new homes dropped 13 percent in October, the most in almost four decades, Lazear said the decline hasn’t had a significant effect on consumer spending so far. He added: “I wouldn’t say we’re not concerned about it.”

The impact tends to be regional, he said, citing increases in the Pacific Northwest against declines in Miami or Los Angeles, where there’s been “very strong growth in the past three years,” leaving “a good bit of equity.”

Bush Advisers Reduce Growth Forecast for 2008 to 2.7%
By Roger Runningen | Bloomberg