Reacceleration Forecasted in Second Half of 2013

By Pete Bakel

The year’s strong start faded late in the first quarter across many key economic indicators, but the recent set-back likely is a temporary one, according to Fannie Mae’s Economic & Strategic Research Group. Economic growth accelerated in the first quarter as expected, boosted by inventory replenishment following a sizable drawdown in the prior quarter, as well as the strongest increase in consumer spending since the end of 2010.

Activity slowed in recent months, partly due to ongoing fiscal drags including the sequester. However, a modest reacceleration is expected in the second half of the year as the labor market regains traction amid further forecasted improvement in financial and housing market conditions. Overall, the Group expects growth of 2.2 percent for all of 2013, continuing a modest recovery following 1.7 percent and 2.0 percent growth in 2012 and 2011, respectively.

“Our May forecast predicts that the second half of 2013 will be a little stronger than the first half, despite the slowdown during the past couple of months,” says Fannie Mae Chief Economist Doug Duncan. “Employment numbers are getting better, albeit it at a relatively slow pace, and the April employment picture should help boost consumer sentiment toward the economy overall. Spending grew in the first quarter at a surprisingly strong pace, and although this rate is unlikely to hold up, consumers continue to show signs of resilience in the face of fiscal concerns. However, we continue to keep an eye on potential headwinds to our forecast, including the long-term effects of sequestration, spending constraints, the sovereign debt crisis, and the impending debt ceiling.”

The housing market continues to grow at a sustainable, if not yet robust, pace. Housing is expected to act as a tailwind for the economy throughout the year and into 2014, even though there may be short-term ups and downs in overall economic activity. The Group notes some improvement in home purchase demand. If demand awakens further and more jobs are added each month economic activity should step up compared to 2012 levels with housing acting as a significant contributor to growth.

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