This story was originally published in Builder.
Fannie Mae on Tuesday upped its forecast for economic growth by a tenth of a percentage point based on a robust second quarter growth estimate of 4.2 percent, according to the Fannie Mae Economic and Strategic Research Group's July 2018 Economic and Housing Outlook. It now expects the economy to grow at a 2.8 percent pace for the year.
The ESR Group believes the second quarter's annualized growth pace is unsustainable for the balance of the year, as the contribution from trade was likely temporary. As impacts of fiscal policy begin to fade in the second half of 2019, the group expects full-year 2019 growth to moderate to 2.2 percent.
"As we celebrate the ninth anniversary of the economic expansion with what's likely to be a robust second quarter, we're also examining whether last quarter's headline growth will mark a high point for the remainder of the cycle," said Fannie Mae Chief Economist Doug Duncan. "Along with ongoing tightening of monetary policy, we expect fiscal stimulus, which has supported consumer, business, and government spending, to weaken as we move into 2019. And while trade provided a meaningful lift last quarter—owing in part to overseas firms pulling forward their imports from the U.S. ahead of the announced tariffs—we expect trade will likely once again be a drag on growth moving forward. On housing, the same inventory constraints continue to haunt affordability and sales, with demand outstripping supply and home prices continuing to rise at a fast clip as a result."
In its statement, Fannie said, "The ESR Group expects consumer and government spending growth, inventory investment, and a leaner goods deficit to have contributed to the second quarter improvement in GDP. However, while fiscal stimulus should continue to support such spending through the second half of 2018, a strengthening dollar and the potential for a wider range of tariffs could make trade a significant detractor from growth. Additionally, the worsening rhetoric and uncertainty over trade policy has the potential to adversely impact business sentiment and investment spending and hiring. Elsewhere, the labor market continued to improve in June, helping to boost consumer spending growth, which is expected to have tripled in the second quarter compared to the prior quarter. However, with a firming inflation outlook and the Fed signaling that it is willing to tolerate an inverted yield curve, the ESR Group now expects two additional interest rate hikes this year—in September and December—compared to its previous forecast of just one additional rate hike."
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