Stuck At Subpar Growth

WASHINGTON, Aug. 21, 2012 /PRNewswire/ -- Economic activity slowed during the first half of 2012, fueled by a decline in the pace of consumer spending amid a sluggish labor market. Inflation-adjusted consumer spending growth dropped nearly a percentage point during the second quarter to a one-year low of 1.5 percent, as spending fell in June for the first time since last August. However, strong July retail sales helped soothe concern of another pullback. In addition, the July jobs report posted the strongest gain in five months with 163,000 new jobs created. If sustained, such job growth may bolster weak consumer and small business confidence, helping to offset headwinds presented by the domestic policy environment and European debt markets. While modest economic growth is still expected through the end of this year, risks to the outlook remain on the downside, according to Fannie Mae's (OTC Bulletin Board: FNMA) Economic & Strategic Research Group.

"The July data hasn't changed our forecast for slow growth in 2012, but we're increasingly focused on the looming 'fiscal cliff' near year-end," said Fannie Mae Chief Economist Doug Duncan. "The debt ceiling debate, as well as current legislation that could create a drag of more than 4 percent on GDP in 2013, may spur further caution among consumers and businesses alike. On the bright side, we continue to see positive trends in the housing sector, which is showing signs of a durable, long-term recovery."

In contrast to an otherwise dim economy, the broad housing outlook has stayed generally positive. The expected increase in home sales in 2012 over 2011 remains steady at approximately 9 percent and home price expectations for the remainder of the year are now trending upward. Inventories have dropped significantly during the past 12 months, and the resulting tighter supply has helped boost homebuilding activity in some areas. Overall, residential investment is expected to contribute approximately 0.2 percentage points to real GDP in 2012 – the first annual contribution since 2005. However, despite many positive indicators across the housing sector, any growth is likely to keep a modest pace due to other factors, including tight credit standards and an elevated level of foreclosures facing the market in the coming years.

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