Housing Dip Slows GDP

Dec. 21, 2006 — -- If you're looking for a culprit behind the lower-than-expected third quarter GDP results released this morning, take a look at housing.

If you dig into the numbers, you'll find that the downturn in the housing market lopped an astounding 1.2 percent off the nation's economic growth in the July to September time frame. In other words, had housing activity not fallen off so significantly (investment in home building is off 18.7 percent) the GDP growth for the last quarter would have been 3.2 percent.

Economists were expecting the second read of 2.2 percent to hold during the last of three reports, but the steeper than expected downturn in home building, an increase in imports and less investment in business inventories pulled the number down.

There's no substantial change in the economic picture because of today's report because the data is so "stale." We're looking at economic performance from three months ago, so Wall Street isn't making big trades based on the report.

Overall, the economy is slowing down, just like the Federal Reserve Board wants it to. Remember, the central bank hiked rates for two years to keep price pressure down and has been successful in taking the economy down a notch to keep inflation in check.

When do we find out the results for Q4? We'll get the first look at how the U.S. economy fared during the October to December time period on Jan. 31 -- the same day as the next Fed decision on interest rates.

Surveys of economists are predicting that we'll continue to see sub-3 percent economic growth through 2007. It's a prediction of a soft landing -- a slowdown without a recession.

What is GDP? Gross domestic product is the broadest measure of economic activity in the United States. The report measures the value of all goods and services produced in the country.