Print

Email story

Comment

Email editor

Economic growth hits brakes

The nation's slowing trend continues as money for construction dries up and stock prices tumble.

By ASSOCIATED PRESS
Published October 28, 2006

WASHINGTON - The economy has slowed to a snail's pace, growing in the just-finished quarter at the slowest rate in more than three years and stirring fresh debate about the country's financial health heading into the elections.

The Commerce Department reported Friday that economic growth during the July-to-September period clocked in at an annual rate of just 1.6 percent - a subpar performance that mostly reflected the deepening housing slump. Investment in homebuilding was cut by the largest amount in 15 years.

The fresh reading on the economy, which fell short of the 2.1 percent pace analysts were forecasting, disappointed economists, rattled investors and gave Republicans and Democrats plenty to argue about.

McGraw-Hill Construction is expected to forecast the first decline in overall construction spending since 1991, which could place considerable strain on Florida's economy.

Economic matters are expected to influence voters' choices when they go to the polls Nov. 7.

The Bush administration quickly sought to downplay the slowdown in economic activity.

"Everybody expected this. You have a combination of rising energy prices and also rising interest rates, and now you've seen a reverse on both," said White House press secretary Tony Snow.

Democrats countered that the slowdown in economic growth is evidence that the administration and the Republican-controlled Congress are doing a poor job handling the economy.

"Just because the president looks through his rose-colored glasses and sees a strong economy doesn't make it so," said House Democratic Leader Nancy Pelosi of California. "He refuses to see the millions of Americans who are working hard and are unable to get ahead."

Stocks slide

On Wall Street, stocks sagged. The Dow Jones industrials, which had hit new highs in recent sessions, lost 73.40 points to close at 12,090.26.

The latest reading underscores just how much speed the economy has lost this year.

In the first three months of this year, the economy grew at a brisk 5.6 percent pace, the strongest growth spurt in 2½ years. But growth slowed to a 2.6 percent pace in the second quarter as consumers and businesses tightened their belts in response to the toll of rising energy prices and the effect of two-plus years of climbing interest rates.

In the third quarter, though, consumers and businesses did their part to keep the economy going.

Consumers boosted spending at a rate of 3.1 percent, up from a 2.6 percent pace in the second quarter.

Businesses increased spending on equipment and software at a 6.4 percent pace in the third quarter, a turnaround from the 1.4 percent rate of decline in the second quarter.

Spending on home building dropped at a rate of 17.4 percent in the third quarter, the most since the first quarter of 1991. The housing slump shaved 1.12 percentage points from the third quarter's overall economic growth, the most in almost 25 years.

With economic growth slowing and energy prices retreating, the Federal Reserve has leeway to keep holding interest rates steady, analysts said. The Fed on Wednesday left rates unchanged for the third meeting in a row.

The Fed had hoisted rates 17 times since June 2004 to fend off inflation. The Fed's goal is to slow the economy sufficiently to thwart inflation but not so much that it tips into recession.

[Last modified October 27, 2006, 23:39:23]