Fannie Mae: Economic Expansion Expected to Decelerate in Second Half

Fannie Mae, Washington, D.C., said expectations for 2017 economic growth remain at 2.0 percent amid a projected second half slowdown.

The company’s July Economic and Housing Outlook noted with the expansion entering its ninth year, incoming data point to a second quarter economic growth rebound to 2.7 percent annualized, up from 1.4 percent in the first quarter. However, Fannie Mae Chief Economist Doug Duncan said the full percentage point rise in the saving rate since December signals increased caution among consumers, despite elevated consumer confidence.

“While second quarter growth is poised to rebound, we expect growth to moderate through the remainder of 2017. Consumer spending, traditionally the largest contributor to economic growth, is sluggish and is lagging positive consumer sentiment and solid hiring,” Duncan said. “While labor market slack continues to diminish, wage growth is not accelerating and inflation has moved further below the Fed’s target. These conditions support our call that the Fed will continue gradual monetary policy normalization, announce its balance sheet tapering policy in September, and wait until December for additional data, especially on inflation, before raising the fed funds rate for the third time this year.”

The report noted second half growth is expected to slow slightly to 1.9 percent. Moderate growth is expected to continue in 2018, with potential changes to fiscal and monetary policy posing both upside and downside risks to the forecast.

“Construction activity has lost some steam following the first quarter’s weather-driven boost,” Duncan said. “Meanwhile, very lean inventory continues to act as a boon for home prices and a bane for affordability, particularly among potential first-time homeowners.”