Housing downturn slows US growth
By Eoin Callan in Washington
Copyright The Financial Times Limited 2006
Published: December 21 2006 15:32 | Last updated: December 21 2006 15:32
The US housing downturn dented consumer spending more than previously thought in the third quarter and dragged down economic growth, government figures showed.
The economy grew by an annual rate of 2 per cent in the quarter compared to a prior estimate of 2.2 per cent, according to final statistics released on on Thursday.
The weaker-than-forecast growth was the result of a fall in investment in homes and weaker consumer spending on services, the Commerce Department said.
The threat to consumer confidence from the housing slowdown is one of the main risks to the US economy. However, the dimmer picture for the third quarter is unlikely to influence the Federal Reserve, which is already looking ahead to next year as it keeps interest rates on hold.
The central bank is cautiously optimistic that the economy will grow at a moderate pace next year and recover from an end-of-year downturn.
The Fed is also slightly more concerned about the threat of higher inflation than the risk to growth from the sharpest correction in the housing sector in 15 years.
The central bank is alarmed about stubbornly high increases in core prices and remains ready to raise rates to stem inflation, despite investor concern about the economic oultook.
The figures released on Thursday showed core prices - which exclude volatile food and energy costs - slowed to 2.2 per cent in the third quarter from 2.7 per cent in the second quarter.
But compared to a year ago, core prices rose by the fastest rate in more than 10 years, underlining the finely balanced risks to the economy, economists said.
Robert Mellman, an economist at JP Morgan, said the revisions to consumer spending estimates were “modest” and that inflation was in line with expectations.
The US slowdown is also killing off growth in the Canadian economy, according to Statistics Canada, which said on Thursday that economic activity stagnated in October after falling 0.4 per cent in September.