Economic Growth for Second Half of Year Expected to Improve

Despite recent market volatility, economic growth in the second half of the year is expected to improve, Fannie Mae says.

The Economic and Strategic Research (ESR) Group found that consumer spending and other solid domestic fundamentals are forecasted to be key drivers of the rest of the year economic growth.

“Our forecast for the year is largely unchanged despite recent market volatility. Fundamentals are positive, suggesting potential for some improvement in the fourth quarter,” said Doug Duncan, Fannie Mae’s chief economist.

Various data reports over the last month reveal positive economic activity despite stock market volatility, Fannie Mae explained.

According to the research and the Bureau of Labor Statistics job report, consumer spending rose in July and August, while full-time employment exceeded its pre-recession peak.

“On balance, growth in the second half of the year is expected to come in higher, albeit modestly, than the first half,” the report said.

Housing market strength was also highly unbothered by the volatile stock market, performing strong in a number of areas.

“Continued strong performance of year-to-date home sales and modestly weakening leading indicators confirms that our prior forecast of existing home sales this year remains valid. However, lower actual and projected cash sales led us to revise slightly higher purchase mortgage originations,” Duncan noted.

However, sub-par single-family construction was a little disappointing, causing Fannie Mae to lower their projected single-family starts projection for 2016.

The research group expects that total mortgage originations will increase by about 25 percent for all of 2015, total production volume to fall about 18 percent, and the refinance share to decline about 15 percentage points.

“Overall, we anticipate economic growth of 2.4 percent for 2015, up slightly from 2.1 percent in the prior forecast,” Duncan said. “Consumer and government spending as well as nonresidential and residential investment are expected to contribute to growth while net exports and inventory investment will likely pose headwinds.”

Click here to view Fannie Mae’s full report.