United States economic growth fell sharply in the last three months of 2007 as the credit crunch took effect, according to the latest figures from the Department of Commerce. Overall growth rate in 2007 was 2.2%, the weakest since 2002.
In the last quarter of 2007 the US economy expanded at an annual rate of 0.6%, a major fall from the 4.9% of the previous quarter. The slowdown was triggered by a slump in building activity, which fell by 16.9%, the biggest fall in 25 years, as housing prices collapsed. The US slowdown is even bigger than predicted by analysts who were expecting a reduction to a 1.2% annual growth rate. And it reinforces the view, recently put forward by the IMF, that the US economic slowdown will be longer and deeper than previously thought - and have a greater impact on the world economy. The IMF report suggested that even by the end of 2008, the US economy would still only be growing at a year-on-year rate of 0.8%. The spiraling downturn in the US economy is spurring efforts by politicians and policy-makers to take corrective action. The Federal Reserve in ten days cut the interest rates from 4.25% to 3% and the US Congress and the Bush Administration have agreed an economic stimulus package which would add 150 billion US dollars in tax rebates to the economy. Even the head of the IMF, Dominque Strauss-Kahn, normally a fiscal conservative, has endorsed the need for both monetary and fiscal measures to help stabilize the situation. But there is little sign yet that the US housing market is bottoming out. This week, new data showed that US house prices were falling at their fastest rate since the 1930s, while foreclosures (repossessions) in 2007 topped two million after many sub-prime mortgages went sour. A report from market research firm RealtyTrac showed that in 2007 there were 2.2 million foreclosures in the US, a 75% leap from the previous year. Separately, a Standard & Poor's said home prices fell 7.7% in the year to the September to November quarter. In practical terms this means that 1% of US households are at risk of losing their homes because or the foreclosure process taken by mortgage companies when homeowners fail to keep their loan repayments. Standard & Poor's index measures prices of family homes in 20 US cities showing Miami as the city which recorded the biggest decline, 15%, followed by San Diego and Las Vegas. A further piece of discouraging news came from the index of consumer confidence which fell from 90.6 in December to 87.9 in January. The index has been weakening since July. "Consumers' appraisal of current business conditions is becoming more negative and their assessment of the job market, while slightly less negative than in December, is more negative than a year ago," said Lynn Franco, director of the Conference Board Consumer Research Center.