U.S. will end 2011 with economic growth of more than 2.5%, the highest quarterly growth of the year, says Fannie Mae report, but 2012 seen as year with slow housing market, lower growth expectations
December 20, 2011
– Fourth-quarter economic activity indicates that 2011 will end on a positive note. Economic growth of more than 2.5 percent (the strongest quarterly growth for 2011); stronger employment (140,000 private sector jobs added in November, as well as upward revisions to the previous two months employment data); strong auto sales; some needed inventory building; and slight improvements in housing are among the contributing factors to a decent close of a tough year. Nevertheless, the U.S. economy continues to face many obstacles, with momentum expected to slow going into 2012.
Most notably, Fannie Mae's (OTC Bulletin Board: FNMA) Economics & Mortgage Market Analysis Group notes that the European sovereign debt crisis and resulting stresses in the financial markets remain the biggest risk to the economic outlook in the U.S. The Group expects that the euro zone has slipped into recession in the current quarter and will likely remain in recessionary territory through the first half of next year, which will likely result in ongoing volatility in the U.S. during 2012.
Additionally, wage, salary income, and real disposable income were revised lower for the second and third quarters of 2011. At the same time, real consumer spending rose during both quarters indicating that some of the strength in recent spending numbers was due to people pulling money from their savings. As spending growth outpaced income growth, the saving rate dropped sharply from 4.8 percent in the second quarter to 3.8 percent in the third quarter (the lowest level since the fourth quarter of 2007 when the economy began to slip into recession).
"It's important to recognize that we're ending 2011 on a stronger note than we've seen throughout the year. Unfortunately, however, our 2012 outlook is not as rosy as our forecast for the fourth quarter of 2011," said Fannie Mae Chief Economist Doug Duncan. "Despite recent near-term improvement, the housing market will likely remain subdued next year -- a reflection of the winter season, an expected slowdown in economic activity, and a potential increase in distressed sales. Moreover, we expect that the country's fiscal problems will be hotly debated over the coming year and will weigh on the market. The very large fiscal impact of pending tax and legislation decisions will likely tamp down overall growth expectations for 2012."
For an audio synopsis of the December 2011 Economic Outlook, listen to the podcast on the Economics & Mortgage Market Analysis site at www.fanniemae.com. Visit the site to read the full December 2011 Economic Outlook, including the Economic Developments Commentary, Economic Forecast, Housing Forecast, and Multifamily Market Commentary.
Opinions, analyses, estimates, forecasts, and other views of Fannie Mae's Economics & Mortgage Market Analysis (EMMA) 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 EMMA 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 EMMA 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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