Blame housing for slowest economic growth in three years

U.S. economic growth spiraled down to its lowest point in three years, according to the Gross Domestic Product (GDP) report released by the Commerce Department today.

The key culprit -- the housing sector, in which spending fell to its lowest point since 1991. Residential fixed investment, which includes spending on housing fell 17.4 percent. Yikes!

Prices for homes are dropping dramatically too. The Census Bureau reported yesterday that the median price for a new home fell to $217,000 from $240,400 a year ago. That's the lowest price in two years and the biggest year-over-year decline since December 1970.

Since the construction industry accounts for about a tenth of U.S. economic activity, this drop in spending will likely have a ripple effect throughout the rest of the economy. The construction industry is a major buyer of raw materials and finished products. Think about all the companies that are dependent on new homes being built and people buying things for those new homes.

The impact could be dramatic on so many industries and retail outlets including Home Depot, Loews, appliance manufacturers, furniture dealers -- just about every type of retail outlet that services products needed in a home. In addition to product sales, the decreased activity in construction could hurt job growth and the ability of local governments to raise revenue to pay for local services. There could also be a slide in new construction of stores and shopping centers, which tends to mirror population growth and building trends.

Businesses responded to this expected slowdown by slowing their inventory accumulation, according to the Commerce Department. Stockpiles rose by $50.7 billion compared to $53.7 billion in the second quarter. Analysts were expecting the weaker inventory number because of slowing production of motor vehicles.