June 21, 2011 (Jeff Alan)

Fannie Mae has re-forecast their prediction for economic growth in 2011 as weakness in manufacturing, consumer spending, jobs and housing has resulted in a downgrade in projected growth for the second half of the year according to the June 2011 Economic Outlook.

Fannie Mae now projects economic growth of 2.5 percent for the year, which is down from 2.9 percent projected in the previous quarter, and more than a full percentage point lower than what was forecast at the beginning of the year.

Part of the re-forecast was due to a revision in first quarter economic growth as consumer spending was much weaker than initially believed in the first quarter of 2011 and the fourth quarter of 2010. Declining auto output reduced the forecast by one half of a percentage point from second quarter growth due to the effects of supply chain interruptions.

Consumers continued to be financially wary as consumer spending only increased 0.1 percent for the fourth time in the last 5 months with real purchasing power diminished due to higher gasoline prices.

Employment remains the key to the outlook for the economy and the housing market. The labor markets have lost momentum as unemployment has inched back up over 9 percent and new claims for unemployment have jumped back over the 400,000 per week mark since the beginning of April.

Housing construction is expected to grow by 3.5 percent this year, however, Fannie Mae notes the jump in activity is primarily due to multi-family construction as single-family construction remains at depressed levels.

Housing affordability has improved due to a combination of historically low interest rates and declining home prices. Fannie Mae predicts that the slow economic growth will keep interest rates under 5 percent until at least early 2012.

Overall home sales for 2011 are now expected to increase 4.3 percent, which is up from 4.5 percent projected at the beginning of the year, Ironically, just last month, Fannie Mae had increased the projected sales rate for 2011 to 6 percent.

Fannie Mae is predicting a robust housing recovery in 2012, with new home sales projected to increase by 35 percent, existing home sales projected to increase by 8.6 percent and total home sales projected to increase by 10.2 percent.

Although Fannie Mae feels the likelihood of the economy slipping into another economic downturn is low, the risk has risen slightly as the possibilities of a faltering labor market and a slowdown in consumer demand could jeopardize the chances of the projected economic rebound later this year.

They have been wrong before.

Tags: Fannie Mae, economic weakness, manufacturing, consumer spending, jobs, housing

Source:
Fannie Mae