Economic growth is expected to rebound in the second half of 2016 after a sluggish first half, a new report by Fannie Mae predicts.
Fannie Mae’s Economic & Strategic Research Group’s September 2016 Economic and Housing Outlook projected growth to accelerate to 2.6% in the second half of 2016 after just 1% growth in the first half of the year, according to a news release. The full-year growth forecast of 1.8% is consistent with Fannie Mae’s previous forecast.
The report expects consumer and government spending will drive growth, despite a slow down in consumer activity in the third quarter. However, inventory investment and net exports are expected to be drag on growth and nonresidential and residential investment are expected to be neutral for the year, according to the release.
“Consumers continue to carry the economy and the earnings slowdown in the August jobs report may be an aberration in the recently improving personal income growth trend,”Fannie Mae Chief Economist Doug Duncan said in the release. “However, the declining trend in business productivity has negative implications for businesses’ profit outlook, as low productivity tends to boost labor costs, which could act as a headwind for hiring and investment. Corporate profits are down 4.9% from one year ago, extending their streak of annual declines. We expect nonresidential fixed investment to post a modest increase in the third quarter following three consecutive quarterly declines, while residential investment is likely to decline for the second consecutive quarter.”
Duncan said in the release that a bright spot in the economy is improving sales of new homes.
“The share of new home sales that are under construction or not started has climbed to nearly 70%, improving the outlook for single-family homebuilding,” he said in the release. “Existing home sales underperformed 2015 for the first time in July, however year-to-date sales are still 2.6% higher than during the same period last year. Additionally, the share of for-rent multifamily building starts has trended up with recent trends in homebuilding activity favoring the rental market.”
To read the full report, including the Economic Developments Commentary, Economic Forecast, Housing Forecast and Multifamily Market Commentary, visit http://www.fanniemae.com/portal/research-and-analysis/emma.html.