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Fannie on 2106: Moderate economic growth amid financial market turmoil

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Fannie on 2106: Moderate economic growth amid financial market turmoil

Consumer spending and a relatively healthy labor market should offset headwinds.

Economic growth appears to have slowed in late 2015 and at the start of 2016, perhaps foreshadowing another year of potentially unspectacular economic growth, according to Fannie Mae's Economic & Strategic Research Group.

Despite a forecasted pickup in consumer spending, a relatively healthy labor market, and strengthening residential investment and government spending, economic growth appears to be hindered by deteriorating financial conditions and increasing global concerns. In addition, the strong dollar and sluggish global economy have hurt manufacturing and net exports, creating a further drag on economic growth.         

"We believe that the tightening labor market will further boost wages and help increase consumer spending."

"Slowing economic growth, worsening global financial conditions, and weakening inflation expectations have led us to revise our forecast for fed funds rate hikes to two instead of three this year," said Fannie Mae Chief Economist Doug Duncan. "We believe that the tightening labor market will further boost wages and help increase consumer spending. Recent survey data reaffirm a relatively healthy jobs market with increased job openings, hires, and quits, as well as decreased layoffs and decent gains in average hourly earnings."

"We expect our 2016 theme 'housing affordability constrains as expansion matures' to hold true as home price gains are likely to outpace household income growth as the year continues. However, the expected increase in home prices should help lift underwater mortgages and create a healthier housing market. Meanwhile, increased household formation, low mortgage rates, and easing credit standards and more access to credit for residential mortgages are positive factors for a continued housing expansion. We expect constraints on single-family homebuilding to ease and builders should be able to increase production at a faster pace this year, while the gain in multifamily construction is expected to be more modest than last year."

 

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