Under the administration's new forecast, gross domestic product, or GDP, will grow by 2.7 percent next year. Its old projection called for a stronger, 3.1 percent increase.
"The housing market decline has been more significant that we expected," Edward Lazear, chairman of the White House's Council of Economic Advisers, told reporters in a conference call. That more pronounced housing slump - along with the expectation that problems will persist into next year - was a big factor in the administration's downgrade of its economic growth forecast for 2008.
With the projection of slowing economic growth, the unemployment rate is projected to move up to 4.9 percent next year. That's up from a previous forecast of a 4.7 percent jobless rate but still would be considered fairly low by historical standards. The unemployment rate last year dipped to 4.6 percent, a six-year low.
Inflation, however, should improve. The White House expects consumer prices to increase by 2.1 percent next year, a moderation from a previous forecast of a 2.5 percent rise. That's encouraging news as oil prices have marched past $92 a barrel.
"While the difficulties in housing and credit markets and the effects of high energy prices will extract a penalty from growth, the U.S. economy has many strengths, and I expect the expansion to continue," said Treasury Secretary Henry Paulson.
The odds of a recession have grown this year. But the Bush administration, Federal Reserve officials and others remain hopeful that one can be avoided.
The big worry for economists is that consumers and businesses will cut back on spending and investing, sending the economic growth into a tailspin. Spending by consumers and businesses is the lifeblood of the country's economic activity.
"We continue to see signs of healthy economic growth, which only underscores the resilience of our economy despite continued challenges in the housing sector," said Edward P. Lazear, Chairman of the Council of Economic Advisers. "We are entering a record fifth year of continuous job growth while the unemployment rate remains low and we believe that these trends will continue."
The White House's economic forecasts are issued twice a year. The projections were developed mainly by a team from the Council of Economic Advisers, the Treasury Department and the Office of Management and Budget. The administration's projections are in line with those offered by private analysts.