U.S. economy expected to grow 2.3% in 2012, constrained by slow disposable income growth and household spending, federal government fiscal contraction, state and local government cutbacks: Fannie Mae
April 19, 2012
– Despite economic growth of 3.0 percent annualized for the fourth quarter of 2011, incoming data suggest that economic growth slowed during the first quarter of 2012. In line with previous forecasts, Fannie Mae's (OTC Bulletin Board: FNMA) Economic & Strategic Research Group expects growth to slow to slightly more than 2 percent in the first quarter of the year. The slowdown in economic growth is not indicative of a significant deterioration in the underlying strength of economic activity, but a fading inventory boost to GDP growth. For all of 2012, the Group expects growth to be modest at 2.3 percent as a number of factors combine to constrain activity, including slow real disposable income growth, which should restrain household spending activity; a very small contribution from net exports; and continued fiscal contraction by the federal government, as well as ongoing cutbacks by state and local governments acting as a drag on growth during the year.
"Consumer spending continued its upward trajectory with strong spending on autos and other durable goods, and spending on services showing the largest gain in nearly two years," said Fannie Mae Chief Economist Doug Duncan. "However, the pickup in consumer spending has outpaced income growth, which means that consumers are increasing their spending by borrowing from their savings. Real disposable income has been flat and that needs to change for a higher pace of economic activity to occur."
Through the fourth quarter of 2011, residential investment contributed to overall economic growth for the third consecutive quarter, the first time that has occurred since 2005. Recent housing data also indicate some loss of momentum in the first quarter, underscoring the uneven nature of the current housing recovery. However, confidence among consumers improved in March. The Fannie Mae March National Housing Survey shows that 33 percent of Americans expect home prices to increase over the next 12 months, up from 28 percent in February. On the downside, the Group notes a long-term risk to housing concerning federal student loan debt, which has increased dramatically over recent years and may cause a delay in students' entering the first-time homebuyer market in the future.
On the employment front, the March employment report showed weakening momentum, as the economy created just 120,000 jobs – less than half of the average monthly gain over the prior three months and the smallest gain in five months. However, the setback in the employment report should not necessarily be interpreted too negatively. Other job-related data continue to show signs of improvement with initial jobless claims hovering near a new low of the recovery at the end of March. Despite the unemployment rate dropping to 8.2 percent, the lowest rate in more than three years, it is not indicative of improving labor market conditions, as the rate was driven by a substantial decline in the labor force. The Group expects the unemployment rate to trend down to about 7.5 percent by the end of 2013, with a monthly average gain of approximately 190,000 jobs during 2012 and slightly stronger gains during 2013.
For an audio synopsis of the April 2012 Economic Outlook, listen to the podcast on the Economic & Strategic Research site at www.fanniemae.com. Visit the site to read the full April 2012 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 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.
Fannie Mae exists to expand affordable housing and bring global capital to local communities in order to serve the U.S. housing market. Fannie Mae has a federal charter and operates in America's secondary mortgage market to enhance the liquidity of the mortgage market by purchasing or guaranteeing mortgage loans originated by mortgage bankers and other lenders so that they may lend to home buyers. Our job is to help those who house America.