Bush Aides Reduce Economic Growth Forecast to 2.3%

June 6 (Bloomberg) -- President George W. Bush's economic advisers today lowered their forecast for U.S. growth in 2007, reflecting a slower economy in the first quarter of the year.

Gross domestic product will grow 2.3 percent this year, lower than the 2.9 percent growth predicted six months ago, according to the mid-year report by Bush's Council of Economic Advisers.

The White House's revision reflects the slowdown in economic growth to the weakest pace in four years in the first three months of the year. The new projection brings the administration closer to the consensus of other forecasters. The International Monetary Fund in April cut its 2007 U.S. growth prediction to 2.2 percent, from 2.9 percent.

``The primary factor'' in the lowered forecast is ``the weak first quarter,'' CEA Chairman Edward Lazear told reporters on a conference call. The administration sees a return to a ``faster- growing'' economy for the rest of the year, so the lowered growth projection is ``pure arithmetic,'' Lazear said.

The updated forecasts show slightly higher monthly payroll job-growth and a lower unemployment rate. The economy will add 131,000 jobs per month in 2007 and the unemployment rate will remain at a 4.5 percent average for the year.

Pinch on Consumers

The U.S. economy grew last quarter at the slowest pace in more than four years, a 0.6 percent annual rate that may prove to have been the low point of the expansion. Economists have said that spending may slow as record gasoline prices and falling home values pinch consumers.

Treasury Secretary Henry Paulson, in a statement accompanying the White House report, said he's ``encouraged'' by the economy's ``solid underlying fundamentals.''

``This forecast shows strengthening growth, a healthy job market and contained inflation,'' Paulson said.

The median forecast of 65 economists surveyed by Bloomberg News last month was for a 2.1 percent increase in gross domestic product this year.

Energy price increases don't appear to have a big impact on the overall economy, Lazear said. ``The U.S. economy has been very strong in its ability to fend off the effect of high energy prices,'' he said. The White House doesn't expect energy prices to rise at the same rate as they have in recent months, he said.

Lagging housing sales were ``a major drain'' on the economy last year, Lazear said. ``There are some indicators that things have bottomed out.''

Rising foreclosure rates for non-traditional, higher- interest loans made to people with poor credit histories reflect only a relatively small part of the overall mortgage market, Lazear said. ``We'd be very concerned if we thought what was happening in the subprime market was happening elsewhere, but that doesn't look to be the case,'' he said.

Inflation as measured by the consumer price index will be 3.2 percent this year and the yield on 10-year Treasuries will average 4.8 percent in 2007, lower than the 5 percent forecast six months ago, the White House report said.