Economy Appears to Gain Strength After Flat First Quarter

Concerns Linger Regarding Near-Term Health of Housing Sector

Katie Penote

202-752-2261

WASHINGTON, DC – After stalling out in the first quarter of the year, recent indicators suggest the economy is poised for a pick-up in growth in the second quarter of 2014, according to Fannie Mae’s (FNMA/OTC) Economic & Strategic Research Group. March data revealed positive consumer spending in both goods and services, helping set up a trajectory for more solid spending growth in the current quarter. April auto sales marked the second consecutive month of at least 16 million annualized units – the first time since 2007. The outlook for business capital spending also has improved, with core capital goods orders jumping 3.5 percent in March to the highest nominal reading on record. Additionally, the upbeat April jobs report showed a pickup in hiring at the fastest pace in more than two years, further signaling that the economy is gathering speed.

"We have downgraded our May forecast slightly from April following a very weak first quarter, but we anticipate economic growth to gain momentum in the second quarter and remain firm throughout the rest of this year," said Fannie Mae Chief Economist Doug Duncan. "Reduced drag both from government spending and fiscal policy uncertainty as well as improving financial and labor market conditions should contribute to a rebound, but the sizable down draft from the first quarter likely will keep full-year growth subdued. Overall, we expect economic growth to accelerate to just over 3.0 percent on an annualized basis in the current quarter, and to come in at 2.4 percent for all of 2014."

"The housing picture remains more worrisome, with existing home sales, new home sales, housing starts, and multifamily housing all experiencing year-over-year declines despite improving consumer attitudes," said Duncan. "However, we anticipate a modest uptick in housing activity as the spring and summer selling and building seasons get under way. We believe this year will likely be a bump in the long-term road back toward normal levels, which we continue to expect sometime in late 2016."

For an audio synopsis of the May 2014 Economic Outlook, listen to the podcast on the Economic & Strategic Research site at www.fanniemae.com. Visit the site to read the full May 2014 Economic Outlook, including the Economic Developments Commentary, Economic Forecast, Housing Forecast, and Multifamily Market Commentary.