A slumping housing market pulled third-quarter U.S. economic growth down to its lowest level since early 2003.
The economy grew at an annualized pace of just 1.6 per cent in the quarter, the U.S. Commerce Department said Friday. Economists had been predicting a growth rate of 2.1 per cent.
U.S. investment in home building suffered its biggest cut since early 1991 — down 17.4 per cent on an annual basis.
The U.S. Commerce Department reported Thursday that the median price of a new home fell last month by 9.7 per cent from a year earlier — the biggest drop in more than 35 years.
U.S. economic prospects merit close scrutiny from Canadian investors because, next to Venezuela, Canada is the country most exposed to the vagaries of the American economy.
The cooling U.S. economy led the Bank of Canada to revise its projections downward for the Canadian economy for the remainder of 2006 and 2007.
Last week, the bank reduced its 2006 growth forecast to 2.8 per cent from its earlier forecast of 3.2 per cent. Its 2007 outlook was also cut, to 2.5 per cent from 2.9 per cent. The 2008 growth forecast remained unchanged at 2.8 per cent.
"We are in uncharted territory because the rise in U.S. housing prices this cycle has been unprecedented," Patricia Croft, chief economist of Phillips, Hager & North, told CBC News.
"Where is bottom? So far, we don't know that yet," she said. "But so far, so good. Consumers are still feeling confident; the U.S. economy is slowing, but it's not rolling over into recession."
Most economists share Croft's view that the U.S. economy will manage to avoid a recession.
TD Bank economist Richard Kelly said the slowdown and subsequent recovery of the U.S. economy will be "the defining feature of the global economy over the next four to six quarters." TD pegs the chance of a U.S. recession at one in four.
Faced with the slowdown, the U.S. Federal Reserve on Wednesday left its key interest rate unchanged at 5.25 per cent, a move that was widely expected by Wall Street economists.
The economic report was the final one before the Nov. 7 mid-term elections. White House spokesman Tony Snow tried to downplay the report's impact.
"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."
With files from the Associated PressMore Money Headlines »
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