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Uneven Economic Growth Clouds Picture Of Modest Recovery Trend

Stocks in this article: FNMA

WASHINGTON, Sept. 17, 2013 /PRNewswire/ -- Driven by better net exports and stronger inventory build-up than originally reported, revised economic growth in the second quarter surprised on the upside at a 2.5 percent annualized rate, a sizable upgrade from the previously released sub-2 percent pace. According to Fannie Mae's (OTC Bulletin Board: FNMA) Economic & Strategic Research Group, the upward revision for last quarter has neutralized the previously anticipated strengthening in the current quarter, which also faces potential downside risks from monetary and fiscal policy concerns, rising oil prices, and further mortgage rate increases. However, growth is expected to pick up again in the fourth quarter as fiscal drag fades and household wealth continues to rise. Despite the choppy quarterly pattern, the Group's full-year growth forecast of 2 percent remains unchanged from the beginning of the year.

"Incoming data for the current quarter paint a mixed picture, but overall we expect economic growth to slow from the surprising pace seen last quarter," said Fannie Mae Chief Economist Doug Duncan. "On the bright side, consumer spending appears to be improving from the tepid pace seen at the beginning of this quarter. Although Americans may continue to exercise caution, real consumer spending growth should improve modestly to slightly over 2 percent in the current quarter."

"With regard to housing, all eyes now are turned toward the Federal Reserve, which is expected to begin scaling back its asset purchase program this week," said Duncan. "Mortgage rates have increased more than 100 basis points since early May, and we anticipate that trend to continue, albeit gradually, during the next year. Despite the rise in mortgage rates, we expect the housing recovery to continue, with the mortgage market shifting away from refinance activity and more toward purchase activity. We project that purchase mortgage originations will account for more than half of total originations starting in the fourth quarter of 2013."

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