Housing slump expected to keep economy sluggish
By Jeannine Aversa
The Associated Press
WASHINGTON After ending 2006 lethargically, the economy is expected to remain sluggish most of this year as businesses and consumers cope with fallout from the painful housing slump.
The broadest barometer of the country's economic health, gross domestic product, grew at a 2.5 percent annual rate in the final three months of last year, the Commerce Department reported Thursday.
It was a small improvement from the 2.2 percent pace previously estimated for the fourth quarter and a 2 percent growth rate logged in the third quarter. However, the new reading still marked a lackluster showing that reinforced economists' predictions for similarly listless activity in the coming quarters.
"I see the economy continuing this well-entrenched, below-trend economic groove that we are in," said Stuart Hoffman, chief economist at PNC Financial Services Group.
According to various projections, GDP growth will remain mediocre, hovering at around the 2 percent to 2.5 percent pace in the first half of this year. In contrast, the economy's average, or trend, growth rate is closer to 3.25 percent, economists said. Gross domestic product measures the value of all goods and services produced in the United States.
In other economic news, the Labor Department said new claims filed for unemployment insurance dropped by 10,000 to 308,000 last week. That suggests the jobs market is still in good shape.
Economists, however, predict the nation's unemployment rate, now at relatively low 4.5 percent, is likely to climb higher - perhaps closer to 5 percent by the end of this year - as businesses become more cautious in hiring in response to slower economic activity.
For all of 2007, analysts expect the economy to expand by 2.7 percent, which would be the slowest in four years. The crumbling housing market will cause some belt tightening by consumers and businesses alike, tamping down overall economic activity, analysts predict. The lingering toll of two years of interest rate increases ordered by the Federal Reserve to thwart inflation also figures into the expected cooling of economic growth.
Companies' profits lost ground. One measure showed that after-tax profits edged up by just 0.8 percent in the fourth quarter, compared with a 4.2 percent increase in the third quarter.