Economic growth to slow down

Fannie Mae expects economic growth to average 2.4% in the second half of 2016. While this is up from the 1.1% for the first half of the year, it is a slower pace than what Fannie Mae previously forecasted, according to the company’s October 2016 Economic and Housing Outlook.

“Recent economic data have been a mixed bag, the good, the bad, and the steady,” said Fannie Mae Chief Economist Doug Duncan. “On the upside, the third print of second quarter GDP showed that the economy grew three-tenths higher than in the second estimate, with an encouraging upward revision in nonresidential fixed investment.”

“The steady news comes from the labor market, with relatively decent conditions overall,” Duncan said. “The biggest doses of bad news come from consumer spending, the linchpin of economic growth, and residential investment, which appears to have posted a second consecutive sizable drop in the third quarter.”

The economy is project to grow in the third quarter due to improvements in inventory investment and trade. However, it will be dampened by a decrease in domestic demand, the report stated.

Consumer spending decreased in August for the first time since January and the personal saving rate ticked up, suggesting consumers are feeling increasingly cautious, according to the report.

Furthermore, consumer spending is expected to only continue decreasing in the fourth quarter this year.

“Emerging signs of improving homeownership demand among young adults have been encouraging,” Duncan said. “However, housing activity has lost momentum in recent months.”

“Existing home sales, new home sales, single-family housing starts, and single-family construction spending declined in August,” he said. “In addition, pending home sales and purchase mortgage applications weakened during the month, suggesting continued weakness in existing home sales in the near term amid very lean supply.”

But while Fannie Mae is predicting a slower growth rate than what it previously said,Freddie Mac points out that housing is in fact a bright spot in the economy.

It’s an unlikely statement given rising home prices and dwindling inventory, but it’s exactly what Freddie Mac stated in its monthly Outlook for October.