U.S. Economic Resilience on Display as Coronavirus and Manufacturing Concerns Reverberate Through Markets

WASHINGTON, DC – February 18, 2020 – Expectations for full-year 2020 and 2021 real gross domestic product (GDP) growth were improved by one-tenth to 2.2 percent and 2.1 percent, respectively, on a projected substantial upgrade to business fixed investment later this year, according to the latest commentary from the Fannie Mae (FNMA/OTCQB) Economic and Strategic Research (ESR) Group. A strong January jobs report, perhaps augmented by unusually warm temperatures, featured solid wage growth and better-than-consensus non-farm payroll growth, including in residential construction. The report reinforced the Group’s expectation that the resilient American consumer will support growth in the macroeconomy – and the housing market – over the forecast horizon. While risks remain skewed to the downside and include the potential overvaluation of equity and bond markets and a possible worsening of the coronavirus situation, notable upside risks include a further strengthening of consumer spending and the effects of monetary policy softening domestically and abroad. The ESR Group also maintained its expectation of no further rate cuts from the Federal Reserve in 2020 absent any new signs of economic weakening.

On housing, the ESR Group expects low mortgage rates and strong demand to help grow residential fixed investment at a 3.9 percent annualized pace in 2020, following last year’s contraction of 0.1 percent. That demand, buoyed by labor market strength, is expected to more than meet the moderate uptick in inventory predicted for the latter part of the year. As measured by Fannie Mae’s Home Purchase Sentiment Index^®, consumer sentiment toward housing is approaching an all-time high, reflecting in part Americans’ growing belief that it’s a good time to buy a home. The lower interest rate environment also appears to have fueled a new surge in mortgage refinance applications in January, with similarly strong refi activity expected for February.

“The U.S. economy’s resilience, rooted in labor market strength and improved household balance sheets, was on display in January amid greater market uncertainty, including Boeing’s production schedule and the effect of the coronavirus on the global economy,” said Fannie Mae Senior Vice President and Chief Economist Doug Duncan. “However, corporate earnings continue to impress and a jobs report that came in well above consensus helped mitigate some of the growing cynicism. With business fixed investment poised to rebound in the second half of the year, we upgraded our forecast for full-year 2020 headline growth by one-tenth to 2.2 percent. We also continue to maintain our call that the Fed will leave the federal funds rate unchanged in 2020, despite forward markets’ beginning to price in the increased probability of a rate cut.”

“Looking ahead, we continue to anticipate that the economy’s resilience will help keep housing on a firm growth track,” Duncan continued. “In fact, our updated housing market forecast shows greater strength in essentially every part of the housing market extending through the first half of 2021. The limiting factor for home sales, as well as the primary driver of home price appreciation, remains the supply shortage. Barring an uptick in the inventory of existing homes put on the market, in the near term we’re forecasting relatively flat home sales until higher construction activity can be sustained, which we foresee will be the case later this year.”

Visit the Economic & Strategic Research site at fanniemae.com to read the full February 2020 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.

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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.