Economy expected to pick up in 2008

Updated 5:30 PM September 5, 2007

Economy expected to pick up in 2008

By Bernie DeGroat
News Service

Although economic growth will remain weak for the rest of the year, the housing and car markets will slowly bounce back next year, providing momentum for a turnaround, University economists say.

"Growth accelerates during 2008 and proceeds at a healthy pace through 2009," says Saul Hymans, professor emeritus of economics. "The downturn in residential construction hits bottom in early 2008, consumer spending picks up over the year and vehicles sales make a gradual recovery."

In their annual summer forecast of the U.S. economy, Hymans and colleagues Joan Crary and Janet Wolfe expect national economic output growth (as measured by real Gross Domestic Product) to rise to a 3.5 percent pace in the first half of 2008 and to a rate of 3.7 percent in the second half, before posting a solid 3.2 percent during 2009.

This comes on the heels of lackluster growth of roughly 2 percent from the middle of 2006 to the end of this year, they say.

"The American economy grew especially rapidly from mid-2003 to mid-2006, posting an annualized growth rate of 3.5 percent," Hymans says. "But over the most recent four quarters ending with the second quarter of this year, real GDP has increased at a rate of just 1.8 percent. That's a noticeable slowdown in the pace of the economic expansion."

However, two major factors that accounted for slower growth — the fall in housing starts and the drop in sales of light vehicles — should fare better over the next two years, Hymans and colleagues say.

Housing starts will increase to 1.48 million next year and to 1.58 million in 2009, after plunging from more than 2 million in 2005 and 1.81 million in 2006 to 1.43 million this year, they say. Sales of existing homes will continue to drop from a record-setting 6.18 million in 2005 to 5.7 million in 2006 to about 5 million this year and 4.7 million next year, before moving back up over 5 million in 2009.

"By early next year, housing starts and sales of existing single-family homes begin to recover with the turnaround clearly underway next spring," Hymans says. "Homebuilding activity improves and existing home prices finally stabilize after the turn of the year and start to inch higher next spring."

Sales of cars and light trucks will slide from last year's 16.5 million units to 16.1 million this year — the weakest since 1998. Sales start to recover with 16.4 million units next year and 16.9 million in 2009, the economists say.

According to the forecast, the unemployment rate will edge up from this year's 4.6 percent to 4.7 percent in 2008, before dropping back to 4.4 percent the year after. Core inflation will remain in check at about 2.3-2.4 percent over the next two years, but interest rates will move upward.

Economy expected to pick up in 2008

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