2018 Growth Forecast Holds But 2019 Gets Modest Downgrade

Matthew Classick

202-752-3662

WASHINGTON, DC – The forecast for 2018 full-year growth remains unchanged at 2.7 percent, according to the Fannie Mae Economic and Strategic Research Group’s May 2018 Economic and Housing Outlook. However, 2019 economic growth was downgraded to 2.3 percent due to the expectation of fading fiscal stimulus and a tightening labor market.

“We remain confident that, despite a first quarter hiccup, economic growth will pick up through the rest of 2018. There are signs that consumer spending is poised to strengthen in the months ahead, and we believe recent fiscal policy actions are likely to contribute to growth this year,” said Fannie Mae Chief Economist Doug Duncan. “Come 2019, however, we expect the fiscal boost to fade, and we adjusted our forecast lower accordingly. We also note mounting downside risks to our projections, including growth-constraining protectionist trade policies and rising oil prices, among others. Meanwhile, housing’s upward grind should continue, despite a lackluster first quarter. We expect home sales to post modest gains both this year and next, as prices rise and affordability declines amid low for-sale inventory.”

First quarter economic growth slowed to the weakest pace in a year due to disappointing consumer spending. In particular, a drop off in motor vehicles and parts spending following the fourth quarter surge to replace hurricane-damaged vehicles drove the decline. However, a slight pickup to consumer spending in March suggests growing momentum and sets the stage for a sizeable pickup in the coming quarters with corresponding boosts to GDP. The ESR Group also expects the recent tax and budget acts to benefit business investment and government outlays. Consumer and business confidence measures, including the Home Purchase Sentiment Index®, remain at or near historical highs amid favorable labor market conditions. Rising oil prices pose a downside risk to the economic outlook, as they may negate some of the increase in disposable income from the recent tax cuts while also putting upward pressure on headline inflation. Such inflation could induce a more aggressive monetary tightening timeline from the Federal Reserve. However, for now, the ESR Group continues to project two more interest rates hikes in 2018, including one next month.

Visit the Economic & Strategic Research site at www.fanniemae.com to read the full May 2018 Economic Outlook, including the Economic Developments Commentary, Economic Forecast, Housing Forecast, and Multifamily Market Commentary. To receive e-mail updates with other housing market research from Fannie Mae’s Economic & Strategic Research Group, please click here.

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.

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