White House cuts economic growth forecast

Council of Economic Advisers says GDP to slow for remainder of year and in 2007, blaming weakness on housing.

NEW YORK (CNNMoney.com) -- The U.S. economy should experience slower growth than originally anticipated for the remainder of the year and in 2007, the White House said Tuesday.

The President's Council of Economic Advisers projected that economic growth would be slower than forecasted last June, with real gross domestic product growing 3.1 percent for all of 2006, down from June projections of 3.6 percent pace.

In 2007, the White House expects the economy to expand at a pace of 2.9 percent, lower than earlier predictions of 3.3 percent.

"The economic forecast clearly reflects the fact that the U.S. economy is moderating to more sustainable growth levels, firmer labor markets and steady inflation rates," Treasury Secretary Henry Paulson said in accompanying remarks.

The forecast said that the revisions reflect a weakening in the housing sector, but that other areas of the economy remain strong.

On Monday, the Census Bureau delivered more bad news from the housing sector, reporting that new housing starts slipped nearly 15 percent in October to their lowest level in over six years, while builder's confidence hit a nine-year low.

A number of homebuilders have recently echoed the larger dismal housing picture, including Pulte Home (Charts), the nation's largest home builder, as well as D.R. Horton (up $0.42 to $25.08, Charts) and Toll Brothers (up $0.30 to $29.95, Charts), all of which have reported reduced earnings.

The government forecast, which will be used for the President's next fiscal year budget, delivered a mixed reading on the U.S. job market. The unemployment rate should ease to 4.6 percent during 2006 and 2007, lower than originally forecast in June.

But the Council of Economic Advisers said it expected employers to only add an average of 129,000 jobs per month, fewer than the 156,000 anticipated in June.

Last month, the unemployment rate slipped to 4.4 percent, hitting its lowest level in five years, according to the Labor Department, while employers added 92,000 jobs.

The report also said that the pace of inflation, particularly at the consumer level, should slow for the remainder of the year to 2.3 percent from the previous 3.0 percent forecast.

But that will pick up in 2007, as the Council of Economic Advisers said the consumer price index (CPI) will increase at a 2.6 percent pace, up from the June forecast of 2.4 percent.

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