Healthy Economic Growth Predicted

White House economists said yesterday that the U.S. economy should continue to grow at a healthy pace in the years ahead, even as they warned that the housing market is likely to cool and energy prices may spike in response to supply disruptions.

"The economy has shifted from recovery to sustained expansion," the Council of Economic Advisers wrote in its annual Economic Report of the President, which was sent to Congress yesterday. "Prospects remain good for continued growth in the years ahead."

President Bush, in his cover letter accompanying the report, cited many of the initiatives he recently highlighted in his State of the Union speech and budget proposal, calling on Congress to make his tax cuts permanent, pass his proposed cuts in federal spending, and approve his proposals to boost math and science education and spur research on alternative energy sources.

"By adopting sound economic policies that build on our strengths, we will keep our economy moving forward and extend prosperity for all Americans," Bush said.

Congressional Democrats countered that the president's economic report failed to justify his proposals.

The report "analyzes many key aspects of the U.S. economy but reveals little about how the President's policies would actually help average families or bring down the deficit," Sen. Jack Reed (R.I.), the ranking Democrat on Congress's Joint Economic Committee, said in a statement. "The centerpiece of the President's message to Congress is the benefits of making his tax breaks for the wealthiest permanent, yet there is no analysis in the report to justify that claim."

The 410-page economic report provides an "analytical backdrop to the president's agenda," CEA member Katherine Baicker told reporters in a briefing on the document.

The economy got a boost last year from the hot housing market, the report noted. Builders began construction on more than 2 million new homes in 2005, one of the highest rates on record. The amount of money spent on residential investment accounted for 6 percent of GDP last year, its highest level since 1955, the report said.

But in the next five years, the Bush administration expects the pace of home building to decrease gradually because of population trends and rising interest rates, the report said. A sharp slowdown is less likely, the economists said, because "the elevated level of house prices will sustain homebuilding as a profitable enterprise for some time."

Similarly, the rate of home price appreciation is "likely to slow in the future," CEA member Matthew J. Slaughter told reporters.

Home prices have climbed at a 9.2 percent annual rate for the past five years because of low interest rates, a strengthening job market, rising incomes and other factors, the report said.

Meanwhile, crude oil prices have roughly tripled since early 2002 because of rising world demand, the CEA noted.

With demand continuing to rise, "we are likely to face tight crude oil markets for a number of years," the CEA said, adding that, "in the near term, unexpected disruptions to energy supply and distribution networks may continue to impact consumers and businesses."

Recent increases in energy prices have stimulated efforts to develop more alternative energy sources, the report said. But, Bush said in his letter, "we must continue to find new ways to diversify our sources of energy."

Reed responded, however, that the CEA report explains why energy prices are high, "but we see no proposal from the President to bring relief to the majority of American households who find their budgets squeezed by rising energy costs on the one hand, and stagnation in their take-home pay on the other."

The CEA also affirmed its forecast, first released in December, that the nation's gross domestic product, or total output of goods and services, would grow by 3.4 percent this year, slightly slower than last year's 3.5 percent pace but still above the long-term average rate of around 3.2 percent. The White House projections are close to numerous private forecasts.

White House economists, like many of their counterparts on Wall Street, also expect unemployment to remain low this year, around 5 percent, and for inflation to stay "moderate and stable," the report said.