Economists see slow but solid growth

WASHINGTON – The economy, which stubbed its toe in the final quarter of 2005, is probably back on firm footing in the opening quarter of this year despite a cooling housing market and somewhat skittish consumers.

After digesting the latest batch of economic reports, released Tuesday, analysts predicted that economic activity is rebounding nicely in the January-to-March quarter and will grow by at least a 4.5 percent rate. For all of 2006, the economy will log another year of solid – though slower – growth, they said.

“The economy is doing pretty well now in terms of momentum,” said Brian Bethune, economist at Global Insight.

The economy ended 2005 on wobbly footing, expanding at an annual rate of just 1.6 percent in the October-to-December quarter, the worst showing in three years, the Commerce Department said.

While slightly better than the first estimate of a 1.1 percent growth rate for the quarter, the new figure still showed a loss of momentum from the third quarter’s brisk 4.1 percent pace. The slowdown was blamed on lingering fallout from the Gulf Coast hurricanes and the toll of lofty energy prices, which especially caused consumers to tighten their belts.

Another report provided further evidence that the housing market, which posted record high-sales five years in a row, has lost its sizzle. Sales of previously owned homes dropped 2.8 percent in January to a rate of 6.56 million units, the slowest pace in two years, according to the National Association of Realtors.

The median home price – where half sell for more and half for less – was $211,000 in January. That was the same as in December but up 11.6 percent from a year ago.

Analysts said the report was consistent with their forecasts for a gradual cooling – not a jarring collapse – in the housing sector this year.

A third report showed consumers’ confidence in the economy dipped in February to 101.7, from 106.8 in January, the Conference Board said. People are anxious about economic conditions over the next six months. Their assessment of current conditions, however, held steady at a 41/2 -year high.

“Consumers remained optimistic about their present situation, but going forward, sentiment is a bit shaky,” said Sherry Cooper, chief economist at BMO Nesbitt Burns.

Other recent economic barometers – including retail sales and jobs – suggested the economy did start bouncing back at the beginning of this year. The nation’s unemployment rate dropped to 4.7 percent in January, the lowest in 4 1/2 years.