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After Two Strong Quarters, GDP Swoons

The national economy slowed sharply in the third quarter, falling to 1.6 percent, according to new government numbers. The droop comes after the nation's Gross Domestic Product had expanded at a 5.6 percent annual rate earlier in the year. Analysts blamed the poor showing on a slump in the housing sector.

As rough patches go, this one has arrived with unusual suddenness. Earlier this year, the economy was growing at better than 5.5 percent, and Federal Reserve officials worried about inflation pressures.

Since then, interest rates have gone up, and job creation has been weak. Now, overall growth is what economists call "below-trend" -- meaning it is weaker than necessary to sustain a healthy economy.


Joel Naroff, president of Naroff Economic Advisers, says that, "Clearly, there's an economic slowdown going on. And 1.6 is the slowest we've seen since the quarter where we had the Iraq war in 2003."

But Naroff noted something that a lot of economists pointed out after hearing the new figures. Almost all of the slowdown in growth was due to the unusually weak housing market. Wednesday, the Commerce Department said the median price of a single family home fell in September at its fastest level since 1970.

Bush administration officials downplayed the significance of today's numbers and predicted they would rebound when the housing market stabilized.

In an interview on Bloomberg Television, Treasury Secretary Henry Paulson noted Friday that if it weren't for the home construction sector, overall growth would have been a more respectable 2.6 or 2.78 percent -- about where growth was during the second quarter.


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