The deflation of the housing market is holding the economy back. The growth is slower than it was since 2003. Economists were not even expecting for the growth to be this slow. The commerce department’s report shows that the small growth is indeed a substantial one, mostly due to the slump in housing. Residential construction had it’s biggest decline in fifteen years. With the economy’s shift into low gear, it is unlikely that the federal reserve will resume raising interest rates any time soon. A positive aspect of the slowed growth is that it will hinder inflation. Falling fuel prices are continuing to aid the economy’s growth. The Bush administration is claiming that the economy is resilient to slowdown because of the lower inflation as well as consumer spending. Democrats are saying that the low percentage growth is fact and that the president cannot just assume the economy is in good standing when in fact it is not.
The weakness in housing seems to be an effect of the baby boomers. Many of those in the baby boomer cohort are now beginning to retire. Within the next few years, many will be selling their houses to live in retirement homes. It seems that there is not a high enough replacement level to compensate for this. Therefore, I would not doubt if the housing market continued to hold the economy back for years to come.
The New York Times, Jeremy W. Peters Friday, October 27, 2006
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