WASHINGTON – The worst of the housing slump might be over, although some pain is likely to linger, an adviser to President Bush suggested Tuesday.
This year's housing slowdown — which came off five straight years of booming activity — was a key force behind the overall economy's loss of momentum in the late summer.
Investment in home building during the July-to-September quarter was reduced by the largest amount in 15 years. That sliced 1.16 percentage points off the economy's third-quarter growth, the most in nearly 25 years.
In terms of the crumbling housing market "most of the action has already played out," Edward Lazear, chairman of the White House's Council of Economic Advisers, told reporters.
Still, weakness in the housing sector will be probably visible in the months ahead, he said. "But hopefully that will end in the relatively near future and we'll be able to move back to a period of positive economic growth in the housing sector," he added.
The White House expects the economy to log fairly solid growth for all of 2006 — just over 3 percent — despite the cooldown in the once- sizzling housing market this year. Next year, the Bush administration believes that economic growth will slow slightly to around 2.9 percent and then pick up the following year.
Of the housing slump, Lazear said, "it looks like the precipitous decline that we saw earlier is not going to occur in 2007."
He also struck a hopeful note that energy prices will be more stable next year. Surging energy prices in the spring of this year were a factor in belt tightening by consumers and businesses, which slowed overall economic activity. Later in the year, energy prices dropped but have since crept up a bit.
The volatility in energy prices this year was "an anomaly" that Lazear said he didn't expect to be repeated next year.
Looking ahead when the Democratic-controlled Congress, convenes in early January, Lazear said the White House will continue to press lawmakers to make Bush's tax cuts permanent. Asked whether tax increases could plunge the economy into recession, Lazear replied "absolutely" and said he would be concerned about their "very detrimental effects."
The White House also will fight against any isolationist policies that could crimp trade opportunities for U.S. companies and discourage foreign investment in the United States, he said.
Allan Hubbard, director of the National Economic Council, said it was important to the administration to revive global trade talks and talked about the importance of getting China to move ahead on economic and currency reforms. The United States racked up a record $202 billion trade deficit with the country last year. Critics blamed what they call China's unfair trade policies for the United States' bloated deficit.