Fannie Mae maintains 2017 growth outlook on hurricane-related impacts

Potential tax reform provides upside risk to moderate economic growth expectations for 2018

Fannie Mae maintains 2017 growth outlook on hurricane-related impacts
Fannie Mae maintained its economic growth forecast for the full-year 2017 at 2.2% as it expects hurricane-related impacts to offset GDP growth in the third and fourth quarters, according to its October 2017 Economic and Housing Outlook.

According to the outlook, the third quarter likely saw weaker consumer spending growth and a sharp decline in residential investment, which were partially offset by gains in business equipment investment, inventory investment, and trade.

Fannie Mae said the hurricanes seem to have impacted home sales, which were already seeing lean inventory. The hurricanes also resulted in a confusing employment situation as seen in the September jobs report.

“The impacts from this season’s hurricanes on the US economy were wide-ranging but should dissipate over time. These include the loss of momentum in consumer spending and residential investment, as well as a decline in September payrolls and August home sales and contract signings,” Fannie Mae Chief Economist Doug Duncan said. “We expect economic activity to rebound in coming months. The recovery will likely be slower for home sales and home building, however, as the labor shortage and rising material prices will likely worsen after the hurricanes, exacerbating already-tight inventory.”

Despite the growth outlook remaining unchanged, Duncan said they now believe the year will see total homes sales to be essentially flat compared with the moderate increase predicted in the prior forecast. Duncan also said Fannie Mae continues to expect the Federal Reserve to hike rates in December in spite of muted underlying inflation.

For 2018, Fannie expects economic growth to moderate to 1.8%. It listed potential tax reform as upside risk to the outlook, while restrictive trade policy and geopolitical tensions are downside risks.

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