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White House lowers 2008 growth forecast

The White House on Thursday lowered its forecast for economic growth for next year and said unemployment would rise as the housing slump and tight credit weigh on national economic activity.
/ Source: The Associated Press

The White House on Thursday lowered its forecast for economic growth for next year and said unemployment would rise as the housing slump and tight credit weigh on national economic activity.

Under the administration’s new forecast, gross domestic product, or GDP, will grow by 2.7 percent next year. Its old projection called for a stronger, 3.1 percent increase. The unemployment rate, meanwhile, is projected to move up to 4.9 percent. That’s up from a previous forecast of a 4.7 percent jobless rate. Inflation, however, should improve. The White House expects consumer prices to increase by 2.1 percent next year, a moderation from a previous forecast of a 2.5 percent rise.

“While the difficulties in housing and credit markets and the effects of high energy prices will extract a penalty from growth, the U.S. economy has many strengths, and I expect the expansion to continue,” said Treasury Secretary Henry Paulson.

The odds of a recession have grown this year. But the Bush administration, Federal Reserve officials and others remain hopeful that one can be avoided.

The big worry for economists is that consumers and businesses will cut back on spending and investing, sending the economic growth into a tailspin. Spending by consumers and businesses is the lifeblood of the country’s economic activity.

The White House’s economic forecasts are issued 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 projections are in line with those offered by private analysts.