U.S. economic growth slowed in 3rd quarter

updated 2:45 p.m. ET Oct. 27, 2006

WASHINGTON - Economic growth slowed to a crawl in the third quarter, advancing at a pace of just 1.6 percent, the worst in more than three years.

The latest snapshot of the economy, released by the Commerce Department on Friday, showed that the slumping housing market figured prominently in the economy’s dramatic loss of momentum. Investment in homebuilding was cut by the biggest amount since early 1991.

The reading on gross domestic product was weaker than the 2.1 percent pace many economists were forecasting.

“The housing bubble burst and that really knocked down growth,” said Joel Naroff, president of Naroff Economic Advisors.

Gross domestic product 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. Friday’s report provided the last GDP reading before the Nov. 7 elections.

Economic matters are expected to influence voters’ choices when they go to the polls. President Bush’s approval rating on the economy is at 40 percent, among all adults surveyed in an AP-Ipsos poll. That remains near his lowest ratings. Those surveyed trusted Democrats more than Republicans to handle the economy.

The White House said it was not worried about the slowdown in economic growth.

“Everybody expected this. You have a combination of rising energy prices and also rising interest rates, and now you’ve seen a reverse on both,” said White House press secretary Tony Snow.

Commerce Secretary Carlos Gutierrez said that latest GDP figures displayed the economy’s resilience even as the housing market has tanked. “I would not panic about this,” he said in an interview with The Associated Press.

The third quarter’s 1.6 percent growth rate was the weakest since the first quarter of 2003, when the economy grew at a 1.2 percent annual rate.

The latest performance underscores just how much speed the economy has lost this year.

In the opening quarter, the economy grew at a brisk 5.6 percent pace, the strongest growth spurt in 2 1/2 years. But growth slowed to a 2.6 percent pace in the second quarter as consumers and businesses tightened the belt in response to the toll of rising energy prices and the impact of two-plus years of rising borrowing costs.

In the third quarter, consumers held up well, though. They boosted their spending at a rate of 3.1 percent, up from a 2.6 percent pace in the second quarter.

Businesses, meanwhile, increased spending on equipment and software at a 6.4 percent pace in the third quarter, an improvement from the 1.4 percent rate of decline in the second period.

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