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Press Release

U.S. Economy Reliant on Consumer Spending, Susceptible to Downside Risks

September 17, 2019

Housing Market Continues Balancing Act Between Strong Demand and Limited Supply

Matthew Classick


WASHINGTON, DC – As other parts of the economy begin to exhibit weakness, consumer spending – supported by continued worker compensation growth – remains the primary driver of the current economic expansion, according to the latest commentary from the Fannie Mae (FNMA/OTCQB) Economic and Strategic Research (ESR) Group. The strength in consumer spending led the ESR Group to up its forecast of third quarter 2019 GDP growth by one-tenth to 1.9 percent. However, a measure of consumer sentiment suggesting potential deterioration in second-half spending, along with weaker manufacturing data and further evidence that business investment is slowing due to geopolitical uncertainty, contributed to a downward revision to the ESR Group’s headline growth forecast for 2020 to 1.6 percent. The Group still believes that the Fed will cut interest rates two more times in 2019 but notes risks remain biased to the downside, as trade tensions, a potential no-deal Brexit, and other concerns weigh on the markets.

The ESR Group maintains that mortgage demand remains on solid footing but notes that the lack of existing supply continues to limit home sales even as mortgage rates push new lows. The current low interest rate environment may be supportive of new construction, but the scarcity of existing home listings led the ESR Group to lower its existing sales growth forecast in 2019 to negative 0.3 percent. Total mortgage originations in 2019 are still expected to rise 11.6 percent year over year, due largely to another upward revision in projected refinance activity, which, according to the recently released Mortgage Lender Sentiment Survey®, lenders now report as driving their surging profit margin outlooks.

“Domestic economic data continue to paint a picture of generally positive fundamentals amid a backdrop of continued volatility and uncertainty,” said Fannie Mae Senior Vice President and Chief Economist Doug Duncan. “Consumer spending remains the engine driving the economy forward, but faltering business investment and worrying downside risks, including the ongoing trade tensions between the U.S. and China, could become a heavier weight on growth. It appears the Fed is prepared to help insure against downside risks by easing further, and we’re maintaining our forecast that the Committee will cut rates two more times in 2019 – this week and again in December.”

“The housing story remains primarily one of imbalance between demand and supply,” continued Duncan. “Both our consumer and lender attitudinal surveys hit new highs this month due to near-historically low mortgage rates and generally favorable household balance sheets, but inventory constraints, particularly in the affordable space, continue to hold back housing market sales volume. Refreshingly, in the absence of existing stock, homebuilders appear to be increasingly focused on entry-level homes, as the median square footage of new single-family construction fell 4.3 percent in the second quarter.”

Visit the Economic & Strategic Research site at to read the full September 2019 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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