Marketplace Report: 3rd Quarter GDP Disappoints —

The third-quarter U.S. Gross Domestic Product (GDP) growth was well below what analysts on Wall Street had forecast. Bob Moon of Marketplace talks with Alex Chadwick about what the numbers mean for the U.S. economy.

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MADELEINE BRAND, host:

Back now with DAY TO DAY. I'm Madeleine Brand. New figures out today undercut President Bush's assertion that the economy is strong. The Commerce Department says the gross domestic product grew by about one and a half percent in the third quarter. That is the slowest growth rate in more than three years. Joining me is MARKETPLACE senior business correspondent Bob Moon. And Bob, what's slowing things down? What does this report say is the big drag on the economy these days?

BOB MOON: Well, without question, Madeleine, it's the slumping housing market. That's the main factor behind this really dramatic loss of momentum. We went from a growth rate of 2.6 percent back in the spring to this 1.6 percent reading during the past three months. And it shows just how much the housing market has cooled. The government figures investment in new homes dropped the most since early 1991. That's down by more than 17 percent in just that three-month period. That's a pretty steep rate of descent.

There were other factors as well. Businesses aren't stocking up as much as they were, and we're paying more for the goods that we import.

BRAND: Well, this report looks at the economy's recent performance. What does it say about where things might be headed?

MOON: Well, it's often the case that when you get a couple of economists in a room, you're going to have different takes on what it means, and that's the case now. Some analysts are already pointing out that we see some newer data that seems to show economic growth is picking up modestly in the current fourth quarter of the year, and indeed there's a survey of business executives out today that has most of them expecting that capital growth will remain strong in the coming year.

On the other hand, the plunge in housing has investors raising their bets on the markets this morning that the Federal Reserve will be cutting interest rates next year to spur economic growth.

BRAND: And has the Bush administration had anything to say today about the economy?

MOON: Yeah. Right away the White House is spinning this as something that, well, everybody expected this. Treasury Secretary Carlos Gutierrez told the Associated Press that he wouldn't panic. He says this continued growth in the GDP really shows how resilient the economy is, even with the struggling housing market.

Now, the Democrats on Capitol Hill are arguing that this is proof that the Republicans are moving the country in the wrong direction. Rhode Island Senator Jack Reed says this report undercuts the president's claim that his tax cuts are working.

We'll be looking further into what this all means today in the MARKETPLACE newsroom.

BRAND: Thank you, Bob. Bob Moon of public radio's daily business show, MARKETPLACE, produced by American Public Media.

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