Economy Is Losing Forward Momentum

U.S. economic output (real Gross Domestic Product) grew at a robust 4.0 percent annual rate in the second quarter, a nice rebound from the anemic 0.6 percent pace registered in the first quarter of the year. Even so, second-quarter growth came to only 2.0 percent on a year-over-year basis — a substantial downshift from the growth registered during the three previous years.

The housing production component of GDP (Residential Fixed Investment) was a major economic growth engine during the 2003 to 2005 period, and the abrupt downshift in RFI since early last year has weighed heavily on GDP growth ever since. Contractions in industries closely related to housing production, such as mortgage banking, have added to the downward pressure on overall economic growth.

The housing downswing still is underway and several other sectors apparently are losing momentum in the third quarter.

"We’re currently expecting GDP growth to recede to a 2.4 percent annual rate this quarter, and we’ve cut our fourth-quarter forecast to 2.0 percent," says a release from the National Association of Home Builders. "We currently peg the probability of recession within the next 12 months at 33%, up from 20 percent several months ago."