Despite a downward revision to economic growth in the first quarter, moderate growth is expected to continue for the remainder of 2012, according to Fannie Mae’s (FNMA/OTC) Economic & Strategic Research Group.
However, risks to the economic outlook have tilted to the downside. Factors such as a decelerating trend in hiring, potential contagion in the euro zone from fiscal issues in Greece, and the potential of a massive fiscal drag in the U.S. indicate that the balance between upside and downside risks has diminished.
For all of 2012, growth is projected to come in at 2.2 percent. Consumers remain key to the overall outlook, as attitudes appear to be reaching a plateau after a few months of improvement early in the year. Loss of momentum in labor market conditions, sluggish income growth, and decreasing saving rates suggest that consumers may need to moderate spending unless income picks up.
“For the third year in a row we are experiencing a spring lull in economic activity,” says Fannie Mae Chief Economist Doug Duncan. “Our view is that the underlying resilience of the economy and of consumers in particular that has been demonstrated during the past couple of years will persist. However, the magnitude of the uncertainties surrounding the European debt crisis and our fiscal condition here in the U.S. implies that the risks to the outlook are clearly tilted to the downside.”
The housing market has performed relatively well in the current environment supported by record affordability and very low interest rates, with home sales up 8 percent year over year, but from very depressed levels in numeric terms compared to 2011. In turn, cautious optimism remains in place for continued gradual healing of the housing market, albeit in the face of various headwinds, including weak employment growth, rising student loans, and a continuing stream of foreclosed households.Main measures of home prices have firmed in recent months, as the share of distressed sales has declined in a strong seasonal period. Despite this recent encouraging trend, the Group continues to expect that home prices on a national basis will show a slight additional decline before bottoming in the beginning of next year.
For an audio synopsis of the June 2012 Economic Outlook, listen to the podcast on the Economic & Strategic Research site at www.fanniemae.com.
