Fannie Mae: Projected Economic Activity Downgraded for Second Half of 2012

by 23 Jul 2012

Housing Remains a Bright Spot Despite Overall Slowdown

WASHINGTON, DC – Recent data indicate a slowdown in economic activity for the remainder of 2012, yet modest growth is still expected, according to Fannie Mae’s (FNMA/OTC) Economic & Strategic Research Group.  Breaking pace with a strong first quarter, consumer spending has weakened in recent months as the consumer confidence index fell to the lowest level since January.  Contributing to the downturn is an uncertain job market.  The June employment report showed significantly fewer hires compared to the first quarter monthly average, and ongoing concern regarding the European debt crisis and domestic financial markets may suppress a meaningful increase in private payrolls before the end of the year.  In light of these trends, the Group has revised down the 2012 gross domestic product (GDP) growth projection from 2.2 percent to 2.0 percent.

“The data from the past month collectively point to decelerating economic growth, but growth nonetheless,” said Fannie Mae Chief Economist Doug Duncan. “It’s now clear that our bias toward downside risks noted in the June forecast have materialized, pushing down our already modest growth projections.  However, despite signs of deteriorating momentum for economic activity, housing continues to be a bright spot as news from the housing market has been relatively upbeat, presenting a rare upside boost to the economy.”

The housing market continues to show positive signs.  Compared to the same time last year, home sales increased by 9 percent and single-family housing starts are approximately 20 percent higher, though the levels are still considered below healthy norms.  Residential investment is expected to increase this year but from a very low base, and is expected to contribute to economic growth for the first time since 2005. According to Fannie Mae's June 2012 National Housing Survey, homeowners are showing greater confidence in one-year-ahead home price expectations, and their broad attitudes regarding the housing market continue to improve.  The share of polled consumers who say they would buy a home if they were going to move increased by 6 percentage points to the highest level seen in the survey’s two-year history.  This is likely due in part to low interest rates and the assumption that home prices have hit bottom.

Read original press release from Fannie Mae



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