Economists Cut Back Forecasts for Growth; Waning Business Outlays And Housing Market Woes Add to Gloomier Portrait
A string of downbeat economic reports, including evidence that companies are paring back investment spending and signs that housing is taking another hit, have prompted economists to reduce their forecasts for economic growth in the first half of 2007.</br></br>Since late last year, forecasters have warned that economic growth in 2007 would be weaker than in 2006, due to a slump in housing construction and reduced production by American auto makers. Last year, gross domestic product, the broadest measure of economic activity, grew at an inflation-adjusted 3.3%.</br></br>However, as the housing and auto slumps have deepened while business spending has started to wane, economists are taking another whack at their GDP forecasts. Earlier this month, the consensus estimate of economists surveyed by The Wall Street Journal called for GDP to grow about 2.3% in the first quarter, down from an estimate of 2.5% a month earlier. The forecast for the second quarter was unchanged at 2.4%. One-tenth of a percentage point in GDP amounts to about $13.5 billion.</br></br>"The housing recession is likely to be a little deeper and much more prolonged than any of us have been thinking, and capital spending will be considerably weaker," said Nariman Behravesh, chief U.S. economist at consulting firm Global Insight, which lowered its forecast of first-quarter GDP growth to 1.6% from 2.2%.</br></br>Macroeconomic Advisers, an economic consulting firm based in St. Louis, lowered its forecast to 1.4% from 1.7%. Economists at Morgan Stanley reduced their tracking of first-quarter GDP growth to 1.4% from 1.6% growth; the firm's estimate was as high as 2.2% in mid- March.