Sunday, April 22, 2007


The U.S. economy grew at an annual rate of 1,8 percent compared to 2,5 percent gain in previous year. The growth has been depressed by the longest continuous homebuilding slump.

However, the growth has been paced up by a gain in consumer spending offset by declines in residential construction and business investment. Housing may persist as the biggest growth obstacles. After hitting the core of growth impact, the forecast for the next period is reflecting a positive outlook and conditions to trigger higher growth. Accounting one third of the economy, consumer spending grew at a last quarter's annual rate of 3,5 percent - 0,5 percent less than in the last 3 months of 2006.

Spending on residential construction projects dropped at a 15 percent annual rate. The unexpected drop boosted the sales decline. Sales of new and previously owned homes slowed to an annual pace of 7,29 million last month which is the lowest rate in the last four months.

Consequently, the sales of existing homes dropped 4,3 percent to 6,4 million. Hence, some housing markets in states such as Arizona and California are becoming much tougher. Surprisingly, home building hasn't worsened last month.

Rising costs of fuel and flat home prices contributed its share to dragging down consumer confidence last month. Even a lessening in a tight labor market may have contributed to the downshift in GDP growth.

Despite the possible recession alarming, the U.S. GDP growth remains tight although it weakened in this period. The overall growth at the end of the year remains optimistic and so does the analysits' GDP growth forecasts. The problem at the housing market is the rigidity of prices which strongly influences the consumer confidence and hence housing purchases by the household. The overall effect, of course, affects the supply side as we may see in the U.S. growth report. The decline in consumer confidence is a strong shock to the supply side which, hence, confronts significant level of risk to further accelerate growth of housing purchases.

Growth Weakened as Homebuilding Slumped: U.S. Economy Preview,

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