Economy Struggles to Maintain Lackluster Growth

September 18, 2012

Downside Risks Continue to Predominate Alongside Effects of Summer Drought

Housing Remains a Relative Bright Spot

Pete Bakel

202-752-2034

WASHINGTON, DC – Recent data indicate continued sluggish economic growth for the second half of the year, according to Fannie Mae’s (FNMA/OTC) Economic & Strategic Research Group. Downside risks such as the European debt crisis, the looming fiscal cliff, and a deceleration in hiring have materialized over the past couple of months, creating a significant drag overall. The U.S. drought will likely compound the current slump as it is expected to increase prices of food and other agricultural commodities. Combined with the increase in gasoline prices since early July, headline inflation is expected to pick up, which may stifle real consumer spending growth in the current quarter and may weigh further on consumer attitudes in the coming months.

"The September outlook carries forward many of the trends in July and August, which are keeping growth expectations at sub-2 percent for the rest of the year as well as for all of 2012," said Fannie Mae Chief Economist Doug Duncan. "Compensating for some of the economy’s sluggishness is an increasingly positive, though subdued, housing market. We expect home sales of approximately 9 percent for 2012 and we should see steady improvement from there, although it will take some time before we reach healthy norms."

Home prices ticked up further in recent months – with various measures in the second quarter posting the best performance since 2005 – indicating that prices likely hit bottom in the first quarter of 2012. Year-to-date home sales also gained more ground in July. New home sales increased  about 20 percent above the same period last year (when they set a record low) and existing home sales grew about 10 percent over last year (the best showing since 2007). While housing has improved during the past 12 months, activity remains well below historical standards and continues to show signs of only modest growth through the rest of 2012.

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