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Rough First Quarter Reduces 2014 Economic Growth Expectations

WASHINGTON, June 24, 2014 /PRNewswire/ -- Economic activity contracted in the first quarter of 2014, weakening the odds that full-year growth will top last year's pace, according to Fannie Mae's (OTC Bulletin Board: FNMA) Economic & Strategic Research Group. The reversal of an unsustainable buildup in inventory investment subtracted 1.6 percentage points from GDP in the first quarter, compared to the initially reported 0.6 percentage point drag. Additionally, disruptive weather and a rare drop in real exports also weighed on growth. Although incoming data show a pickup in activity heading into the current quarter, any strength during the remainder of the year is not expected to be enough to overcome the weakness in the first quarter. For all of 2014, the Group forecasts economic growth of 2.1 percent – one-half a percentage point below the 2013 pace.

"We remain confident that the first-quarter drop in activity will reverse, and we are seeing some positive signs in the current quarter, but economic growth likely will be playing catch-up for the rest of the year," said Fannie Mae Chief Economist Doug Duncan. "Consumer spending appears to have been the only real contributor to growth in the first quarter. Although spending dipped again in April, it seems to have rebounded in May. Consumers should get a boost going forward due to continued rising household net worth, which is improving rapidly but remains well below the 2006 peak, as well as firming labor market conditions, which have showed steady albeit unspectacular gains."

"Home price improvements have contributed to consumers' household wealth, but overall growth in the housing market pulled back in the first quarter, with major housing indicators coming in lower year over year compared to the first quarter of 2013," said Duncan. "More recent housing indicators were mixed, with only moderate improvement despite the decline in long-term interest rates. We expect that total home sales in 2014 will be about 2.0 percent lower than in 2013, with new home sales advancing somewhere in the 12-15 percent range and existing home sales declining year over year."

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