Oil and housing put brake on US growth
Oil and housing put brake on US growth
By Krishna Guha in Washington
Copyright The Financial Times Limited 2006
Published: October 27 2006 16:54 | Last updated: October 27 2006 21:06
US economic growth slowed to an annualised rate of just 1.6 per cent in the third quarter of 2006, figures revealed on Friday, as a brutal correction in housing construction and an oil-fuelled rise in imports dragged down economic activity.
The news of the sharper-than-expected slowdown comes at a bad time for the Republican party, which has been leaning on its economic record to shore up support damaged by the war in Iraq in the run-up to midterm elections for Congress on November 7. Growth in the quarter was the slowest since early 2003.
However, strong consumer spending – particularly on automobiles – ensured the economy continued to expand, though below its potential growth rate.
Inflation pressures eased a little, with the core personal consumption expenditure deflator rising at an annualised rate of 2.3 per cent, down from 2.7 per cent.
Bond prices rallied on the evidence of economic weakness, with the yield on 10-year Treasuries falling to 4.68 per cent, while equity prices stalled.
Most analysts expect growth will rebound in the current fourth quarter, as lower oil prices depress imports, though it will probably remain below trend.
Figures from the eurozone showed growth in lending to the private sector equalled its highest rate since the launch of the euro in 1999, highlighting robust economic activity in Europe but raising expectations of possible further interest rate rises by the European Central Bank.
Democrats seized on the weak US third-quarter growth numbers as more evidence that the US was “on the wrong track”.
However, Hank Paulson, the Treasury secretary, dismissed weak third-quarter growth as a “blip”.
In an interview with the Financial Times, Carlos Gutierrez, the commerce secretary, said the capacity of the economy to absorb the correction in housing was “another example of how resilient and how strong this economy is”.
Although headline growth was lower than consensus, the report is unlikely to prompt the Federal Reserve into early consideration of interest rate cuts. This week, it issued a statement saying: “Going forward, the economy seems likely to expand at a moderate pace.”
The statement was widely seen as a pre-emptive strike ahead of the third-quarter growth report.
Additional reporting by Michael Mackenzie
By Krishna Guha in Washington
Copyright The Financial Times Limited 2006
Published: October 27 2006 16:54 | Last updated: October 27 2006 21:06
US economic growth slowed to an annualised rate of just 1.6 per cent in the third quarter of 2006, figures revealed on Friday, as a brutal correction in housing construction and an oil-fuelled rise in imports dragged down economic activity.
The news of the sharper-than-expected slowdown comes at a bad time for the Republican party, which has been leaning on its economic record to shore up support damaged by the war in Iraq in the run-up to midterm elections for Congress on November 7. Growth in the quarter was the slowest since early 2003.
However, strong consumer spending – particularly on automobiles – ensured the economy continued to expand, though below its potential growth rate.
Inflation pressures eased a little, with the core personal consumption expenditure deflator rising at an annualised rate of 2.3 per cent, down from 2.7 per cent.
Bond prices rallied on the evidence of economic weakness, with the yield on 10-year Treasuries falling to 4.68 per cent, while equity prices stalled.
Most analysts expect growth will rebound in the current fourth quarter, as lower oil prices depress imports, though it will probably remain below trend.
Figures from the eurozone showed growth in lending to the private sector equalled its highest rate since the launch of the euro in 1999, highlighting robust economic activity in Europe but raising expectations of possible further interest rate rises by the European Central Bank.
Democrats seized on the weak US third-quarter growth numbers as more evidence that the US was “on the wrong track”.
However, Hank Paulson, the Treasury secretary, dismissed weak third-quarter growth as a “blip”.
In an interview with the Financial Times, Carlos Gutierrez, the commerce secretary, said the capacity of the economy to absorb the correction in housing was “another example of how resilient and how strong this economy is”.
Although headline growth was lower than consensus, the report is unlikely to prompt the Federal Reserve into early consideration of interest rate cuts. This week, it issued a statement saying: “Going forward, the economy seems likely to expand at a moderate pace.”
The statement was widely seen as a pre-emptive strike ahead of the third-quarter growth report.
Additional reporting by Michael Mackenzie
posted by Carlos T Mock @ 2:58 PM
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