WASHINGTON – The housing slump was a heavy burden for the economy in the late summer, a top-level adviser to President Bush said Monday.
The cooling of the once-hot market will "take off a very significant chunk" from the economy's growth in the July-to-September quarter, Edward Lazear, chairman of the White House's Council of Economic Advisers, said in an interview with The Associated Press. The housing slump "is going to hit us," he said.
Lazear's comments come as Election Day nears. Economic matters are expected to be among the things on voters' minds when they go to the polls on Nov. 7.
Lazear didn't make any predictions about how much the economy grew during the third quarter. Many private economists are forecasting that the gross domestic product (GDP) grew at a rate of just 2.1 percent in the third quarter, which would be the weakest performance since the final quarter of last year. At the time, the economy was still reeling from the blows of the Gulf Coast hurricanes.
The government will release its first estimate of third-quarter GDP on Friday. GDP measures the value of all goods and services produced within the United States and is considered the best barometer of the country's economic standing.
Lazear said he isn't overly troubled by expectations for a weak third quarter because he views it more as a temporary "blip" rather than a trend. He said he believes growth probably will be stronger in the current October-to-December quarter.
The economy, he said, is in fundamentally good shape. The labor market is also healthy, with the unemployment rate dipping to 4.6 percent in September. Democrats, however, argue that the benefits of the economic expansion aren't being reaped by all Americans, especially the poor and the middle class.
Lazear and other economists believe that other positive factors — including decent consumer spending and business investment — will help cushion the sting of the negative impact of the housing slowdown.
Earlier this month, Allan Hubbard, director of the National Economic Council, predicted the pace of growth from July through September could range from 1 percent to 2 percent.
The economy grew at a pace of 2.6 percent in the second quarter of this year, reflecting the bite of the housing slowdown, the toll of high energy prices and the impact of the Federal Reserve's two-year campaign of raising interest rates.
The second-quarter's showing was less than half the 5.6 percent pace logged in the first three months of this year — the best growth spurt in 2 1/2 years.
On another issue, Lazear took issue with a recent report from the nonpartisan Congressional Research Service which estimated that the economic growth stemming from Bush's first-term tax cuts will likely generate revenue worth about 7 percent of the total cost of those tax cuts. Those tax cuts in 2001 and 2003 were estimated to cost $1.1 trillion over 10 years.
Lazear said it was too soon for any economic study to come to a solid conclusion on how much revenue the tax cuts generated through increased economic activity.
"I have no doubt that the tax cuts were instrumental in turning the economy around," he said. "Was it 7 percent or 10 percent? I wouldn't want to give you a number."
Lazear said he has never argued that tax cuts pay for themselves.