Underwhelming Growth Continues July 23, 2012 P

Underwhelming Growth Continues
July 23, 2012

Projected Economic Activity Downgraded for Second Half of 2012

Housing Remains a Bright Spot Despite Overall Slowdown

Pete Bakel

202-752-2034

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.

For an audio synopsis of the July 2012 Economic Outlook, listen to the podcast on the Economic & Strategic Research site at www.fanniemae.com . Visit the site to read the full July 2012 Economic Outlook, including the Economic Developments Commentary, Economic Forecast, Housing Forecast, and Multifamily Market Commentary.

Opinions, analyses, estimates, forecasts, and other views of Fannie Mae's Economic & Strategic Research (ESR) Group included in these materials should not be construed as indicating Fannie Mae's business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the ESR Group bases its opinions, analyses, estimates, forecasts, and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current, or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts, and other views published by the ESR Group represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.

Fannie Mae exists to expand affordable housing and bring global capital to local communities in order to serve the U.S. housing market. Fannie Mae has a federal charter and operates in America's secondary mortgage market to enhance the liquidity of the mortgage market by purchasing or guaranteeing mortgage loans originated by mortgage bankers and other lenders so that they may lend to home buyers. Our job is to help those who house America.