2018 Growth Forecast Upgraded Again, No Thanks to Housing

Matthew Classick

202-752-3662

WASHINGTON, DC – The Fannie Mae Economic and Strategic Research Group revised upward its full-year 2018 economic growth forecast to 3.0 percent – from 2.8 percent in the prior forecast – on expectations that third and fourth quarter inventory restocking will outweigh slowing consumer spending growth and a decline in net exports, according to its August 2018 Economic and Housing Outlook. The ESR Group also continues to cite trade policy as a key source of downside risk, and again notes that fading fiscal policy impacts and tightening monetary policy are central to its 2.3 percent growth projection for 2019.

“Breakneck headline growth in the second quarter disguised a detail largely responsible for the latest upward revision to our full-year growth forecast: a need to restock declining business inventories, which we expect will support greater growth amid weakness elsewhere,” said Fannie Mae Chief Economist Doug Duncan. “Housing continues to drag on growth due to lackluster homebuilding activity, home sales, and brokers’ commissions; and its overall weakness likely reflects continuing inventory shortages, rather than a decline in demand. While meaningful wage growth remains elusive, the labor market is strong and inflation appears to be gaining additional steam, making a Fed rate hike in September highly likely. Assuming consumer and business confidence can steer clear of escalating trade tensions, we expect the Fed to raise rates two more times in 2018, including next month.”

The ESR Group expects real consumer spending growth to moderate in the third quarter, despite recent evidence that consumers may have more cushions from savings to support future spending than previously believed. As anticipated, government spending posted a strong increase in the second quarter, reflecting budget-related legislation, but barring new stimulus its impact on growth should begin to dissipate next year. Additionally, following last quarter’s rush by international firms to “pull forward” U.S. imports ahead of previously announced tariffs, the ESR Group expects that trade will return to its previous status as a drag on growth, reflecting both a reversal of last quarter’s surge and the negative effects of the strengthening dollar. For the fourth time in five quarters, residential investment detracted from growth, as housing activity weakened across the board. Tight supply continues to support home price appreciation while posing a challenge to affordability.

Visit the Economic & Strategic Research site at www.fanniemae.com to read the full August 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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