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Economy remains on firm footing amid global risks

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Economy remains on firm footing amid global risks

But strong growth doesn’t appear to be in the cards.

Fannie Mae's Economic & Strategic Research (ESR) Group expects economic growth to pick up in the fourth quarter, bringing growth for all of 2015 to 2.2% with a slight expansion to 2.4% in 2016. Solid consumer spending and an increase in construction activity, home sales, and home prices appear poised to offset global headwinds. Despite losing some momentum at the start of the fourth quarter, consumer spending is expected to climb through the remainder of 2015 and into next year, while a strong US dollar and weak global growth are expected to keep continued downward pressure on manufacturing and exports.

"We see consumer spending as the biggest driver of growth moving into 2016, backed by positive fundamentals including an improving labor market and household net worth," said Fannie Mae Chief Economist Doug Duncan. "An uptick in average hourly earnings and low unemployment numbers in the October jobs report are contributing to a positive outlook for consumer spending. In addition, recent data suggesting that consumers are becoming more comfortable using their credit cards and that banks are loosening lending standards amid rising demand for consumer loans bodes well for future growth."

"Despite mixed housing and mortgage market data, our forecast for housing activity is little changed over the past several months," said Duncan. "The supply of existing homes remains lean amid slowing new single-family construction, putting significant upward pressure on home prices. While this helps boost home equity, it hurts affordability, especially for potential first-time homebuyers. Meanwhile, we expect mortgage rates to rise only gradually through next year, and an improving income trend should help support affordability. We foresee total home sales improving further in 2016, albeit at less than half of the 8.0% increase expected this year.”



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