(Reuters) - Business activity, capital spending and hiring slowed in the third quarter in response to tightening credit conditions and a rapidly deteriorating housing market, an industry survey showed on Monday.

But the majority of respondents to a National Association of Business Economists October survey said that tightening credit conditions have not affected their business, while just over a third reported negative impacts.

The finance and goods-producing sectors had the largest percentage of respondents indicating a negative impact from tighter credit conditions.

The housing market outlook turned from bad to worse, with 98 percent of respondents expecting a further slowdown in housing activity and 54 percent expecting the slowdown to be substantial.

Respondents were split as to whether a slowdown would have an impact on their business.

PROFIT MARGINS IMPROVED

Despite persistent material cost pressures, profit margins improved for the 17th consecutive quarter as firms raised prices and kept unit labor costs in check, the survey said.

Performance in the goods-producing sector lagged, with both profit margins and employment decreasing in the third quarter.

Since July, NABE survey participants have marked down their forecasts for U.S. economic growth in the second half of 2007.

In the October survey, 52 percent of those surveyed expected annualized real GDP growth of 0-2 percent and 40 percent projected growth in the 2-3 percent range.

"Still, respondents expect the economy to keep expanding, with both employment and capital spending rising, albeit more slowly than anticipated three months ago," said Sara Johnson, managing director with Global Insight.

The quarterly survey of 113 NABE members in four broad sectors found that growth in demand for goods and services at respondents' firms slowed in the third quarter of 2007.

Goods-producing firms reported a downturn in demand for the first time since the October 2006 survey.

After strengthening in the spring, growth slowed abruptly in finance, insurance and real estate, as well as in transportation, utilities, information and communications.

In contrast, firms in the services sector noted a slight pick-up in growth during the summer quarter.

Industry profit margins increased for a 17th consecutive quarter, although the rate of improvement has downshifted in 2007, the survey showed. Goods-producing firms, however, saw profit margins decrease for a second consecutive quarter.

PULLBACK ON CAPITAL SPENDING; EMPLOYMENT MIXED

Capital spending growth was rising at 28 percent of survey respondents' firms, a bit below the historical average. While most respondents pulled back on their capital spending plans for the coming year, all four sectors are still expecting increases.

Outlays for computers and communications equipment, as well as structures, are expected to rise in all four sectors in the year ahead, but not as vigorously as projected in the July survey.

Employment continues to rise moderately, supporting household incomes. During the third quarter, 26 percent of respondents reported rising employment at their firms, while only 11 percent reported job cuts. Over the next six months, 32 percent of firms are expected to increase payrolls, while 53 percent hold job counts steady, and 15 percent make cuts.

GDP EXPECTED TO BE BELOW 2 PERCENT

Less than half of NABE panelists said they expect inflation-adjusted gross domestic product, or real GDP, to grow at an annual rate above 2 percent in the second half of 2007.

Fifty-three percent of respondents expected GDP growth to be below 2 percent, a more pessimistic view than participants had expressed in the last survey regarding the second half of the year.

Survey respondents are NABE members who work for private sector companies and industry trade associations.

the oregon market has many small builders with a million dollar plus inventory sitting and lots put on the market to be resold so the banks are shutting off the money and the price reductions are more common, just cutting the gravy out of the deals.