Date of this Version
After years of accelerating growth, the U.S. economy achieved a soft landing in 2006. The rate of economic growth remained positive but slowed sufficiently to reduce inflation pressures and the need for further interest rate increases. At the same time the economy remained strong enough to continue the current expansion which has been in place since late 2001. Such a soft landing is vital because it should allow the economy to continue to expand for years to come, but with moderate inflation.
The housing sector played an important role in the U.S. economy’s recent slowdown. Housing prices and con-struction activity have fallen significantly in 2006. The decline is expected to continue into early 2007 before housing prices stabilize and construction activity and employment begin to grow again. Other sectors of the economy (manufacturing, retail, and services) should continue to grow throughout the period.
A recovering housing sector in 2007 should lead to a reacceleration of the economy in the second half of the year. Overall, the slow growth seen in late 2006 is expected to continue through early 2007. As a result, growth in real GDP will reach only 2.5% in 2006 and 2007. Real GDP growth will reach 3.0% in 2008 and 3.5% in 2009.
The rate of inflation also began to slow in late 2006 due to falling energy prices. Gasoline prices have stabilized at historically higher levels. Stable prices, however, will not fuel inflation in the years to come. Less risk to inflation has allowed the Federal Reserve Bank to end its string of interest rate increases.
Employment is expected to expand in all major industry groupings throughout the 2007 to 2009 period. The fastest rate of growth is anticipated in the services sec-tor. Manufacturing employment also is expected to grow. Solid job growth will keep national unemployment rates well below 5 % throughout the period.