The Bush administration forecast on Wednesday that economic growth will be weaker this year than it previously thought and prices will rise faster, but said the outlook remained promising.
A joint press release from the White House Council of Economic Advisers, Treasury Department and Office of Management and Budget revised down a forecast for 2007 growth in gross domestic product to 2.3 percent this year from 2.9 percent.
The latest figures, presented on a fourth-quarter-over-fourth-quarter basis, update estimates that were made last November. They will be used in a mid-year review that the White House will issue later.
The key reason for revising the figures down was because the economy grew at a weak pace in the first quarter of this year, though the Bush administration forecast the pace of growth will pick up as the year wears on.
"A variety of indicators signal a faster-growing US economy for the rest of this year," said Edward Lazear, chairman of the White House's Council of Economic Advisers. "Unemployment remains remarkably low, business inventories are lean compared with sales and now industrial production is on the rise."
The revised White House forecast also has consumer prices rising 3.2 percent in 2007 instead 2.6 percent as previously estimated, though it foresees that easing to a 2.5 percent pace of price rise in 2008.
In a conference call with reporters, Lazear said higher energy prices were the main reason that the forecast rate of price rises was pushed up but played down the potential impact of costlier energy on the broader economy. "Because of the robustness of the US economy, we have been able to survive higher energy costs without any economic shock," he said.
Similarly, Lazear insisted that some of the drag from weaker investment in the building of new homes was being offset by stronger non-residential construction spending, and that problems in so-called subprime lending markets were not creating a problem for the overall economy.
Subprime lending primarily describes mortgage loans to homebuyers with poorer credit histories. Most of the problems that this lending category now is encountering are clustered among adjustable-rate mortgages where default rates have been rising.
"We haven't seen any spread (into other mortgage loans), so we're encouraged by that," Lazear said. The White House forecasts that economic growth will accelerate after this year's relatively anaemic 2.3 percent to 3.1 percent in each of 2008 and 2009. Conversely, it sees price rises, measured by the consumer price index, easing from this year's 3.2 percent to 2.5 percent in 2008 and to 2.4 percent in 2009.
Lazear said a key reason for the optimism on prices is that "we don't expect energy price rises to continue at the same rate" that they has been occurring recently, most visibly for ordinary Americans at the gasoline pump.