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Last Updated: Thursday, 29 November 2007, 18:04 GMT
US reduces 2008 growth forecast
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Consumer spending is expected to be further hit
The White House has lowered its 2008 economic growth forecasts because of ongoing problems in the housing and credit markets, and high oil prices.

It cut its forecast for next year to 2.7% from the 3.1% target made in June.

This echoes analysts' views that the US economy, which was in good shape, has yet to feel the full impact of the credit squeeze that hit in the summer.

Other data, showing a rise in jobless claims and a softening housing market, has added to the negative outlook.

Decline

Figures from the Commerce Department showed that average prices paid for new homes had fallen in October, though sales increased.

The median sales price for a new home slid 8.6% to $217,800 compared with September, according to the Department of Commerce.

Sales of new homes rose to an annual rate of 728,000 from September's figure of 716,000.

But the figure had only risen because September's figure had been revised so far downwards, analysts said.

"They technically went up, but don't be fooled - we've had a net revision of 74,000 over the last few months," said Adam York of Wachovia Economics.

"The overall picture is that housing is still going to decline at least for the rest of this year. We would not be willing to call September the bottom," he said.

Retailers

One of the areas expected to be hit in the months to come is consumer spending, a fear that was underlined by the latest figures from the department store chain Sears.

The company said that its net income fell to $2m (970,000) for the three months to 3 November from $196m in the same period last year.

Sears blamed the decline on increased competition, the housing market, the credit crunch and unseasonably warm weather, which hit clothing sales. It also had to mark down the value of its stock.

Sears shares were 16% lower in afternoon trading.

Other data released Thursday showed that the pace of economic growth had quickened between July and September, further showing that it is taking time for the credit squeeze to filter through.

The Department of Commerce updated gross domestic product (GDP) data showed growth of 4.9% over three months, compared with an earlier estimate of 3.9%.

It put the improvement down to strong exports and businesses buying stock.

The rate of growth was the fastest for four years, but it is not expected to be repeated in the current quarter.

This was echoed by the White House report which also revised its 2007 overall growth forecast to 2.7% from 2.3%.

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