Declines in Housing and Exports Depress Growth

April 27, 2007 (GDP Byte)

Declines in Housing and Exports Depress Growth

GDP Byte By Dean Baker

For Immediate Release: April 27, 2007

Contact: Lynn Erskine, 202-293-5380 x115

Productivity Growth has averaged just 1.6 percent since 2004.

Continuing declines in the housing sector, coupled with a fall in net exports, held GDP growth in the first quarter to 1.3 percent. This is the slowest growth rate since the first quarter of 2003, when the economy grew at a 1.2 percent annual rate.

Consumption remains the main prop to the economy, growing at a 3.8 percent rate and adding 2.66 percentage points to growth for the quarter. An 11.4 percent increase in the rate of car sales added 0.56 percentage points to growth. Medical care was also a big factor, adding 0.55 percentage points and accounting for more than 40 percent of the growth in the quarter. The savings rate was -1.0 percent, up slightly from the -1.2 percent rate of the fourth quarter. This was the eighth consecutive quarter of negative savings.

Housing investment declined at a 17.0 percent annual rate, the sixth consecutive quarter of decline. Housing investment is now 17 percent below its 2005 peak. The last time there was such a sustained falloff in the housing sector was in the 1981-82 recession. With inventories of new and existing homes both at near record levels, this decline is likely to continue.