The White House, in a slightly more optimistic forecast, predicted Thursday the economy will log solid growth and unemployment will dip this year.
The Bush administration forecast that the gross domestic product will grow by 3.6 percent, as measured from the fourth quarter of last year to the fourth quarter of this year. That is a better than its previous forecast of a 3.4 percent increase for this year.
The upgraded forecast comes despite a rise in energy prices and mostly reflects the big growth spurt in the opening quarter of this year.
“We continue to see signs that the U.S. economy is strong,” Treasury Secretary John Snow said
For all of 2005, the economy expanded at a 3.2 percent pace.
Gross domestic product measures the value of all goods and services produced within the United States. It is considered the best barometer of the country’s economic standing.
The White House continues to predict solid economic growth in 2007 and 2008, at 3.3 percent of 3.2 percent respectively. Those forecasts are unchanged from previous estimates.
The administration’s new forecasts also predicted further improvement in the unemployment rate, which had edged down to 5.1 percent by the end of last year.
The White House now expects the jobless rate for all of 2006 to drop to 4.7 percent, compared with its previous forecast of 5 percent.
But in 2007 the rate would inch up to 4.8 percent and to 4.9 percent in 2008, according to the new forecast. Still, that would be better than the old forecast, which had the jobless rates in 2007 and 2008 at 5 percent.
Inflation is projected to turn higher this year than thought six months ago.
Consumer prices are expected to rise by 3 percent this year, compared with a previous forecast of a 2.4 percent. That higher inflation forecast reflects the big jump in energy prices this year.
Oil prices hit a record high of more than $75 a barrel in late April; they settled at $70.35 a barrel on Thursday. Gasoline prices, which have marched higher, are above $3 a gallon in some areas.
Edward Lazear, chairman of the White House’s Council of Economic Advisers, told reporters he does not anticipate that high energy prices “will be a significant damper” on overall economic activity. He said he was aware that those higher prices have affected people “in significant ways,” from the cost of driving to heating their homes.
Inflation should calm down a bit over the next two years, rising by a more moderate 2.4 percent in 2007 and 2008, the White House said. That was the same as previously forecast.
These forecasts came out twice a year. The projections were developed mainly by a team from the Council of Economic Advisers, the Treasury Department and the Office of Management and Budget.
The administration’s new figures are largely in line with forecasts from private economists. “It all looks very reasonable,” said Joel Naroff, president of Naroff Economic Advisors.
Lazear also told reporters he was not overly worried about the stock market’s recent swoon.
“The market has been volatile in the last couple of weeks but volatility is not unusual in the stock market,” he said. “Seeing movement up and down is not unexpected, but obviously we like to see things move up. But again, we don’t think of this as being particularly alarming.”
Lazear expressed confidence that the economy, which grew at a 5.3 percent annual rate in the first quarter, will shift to a more moderate and sustainable pace. “All of the indications that we’ve seen are that we are moving to a soft landing,” he said.