Fannie Mae [1]'s Economic & Strategic Research Group [2] predicts in its December 2014 Economic Outlook that the U.S. economy will strengthen heading into 2015 following an up-and-down 2014 that ended on an unspectacular note.
The group is forecasting full-year growth of 2.1 percent for 2014, a full point below 2013's rate of growth, due to the reverse in the final quarter of some unsustainable forces that boosted the economy in the third quarter. However, the group is predicting economic growth of 2.7 percent for 2015 based on firming consumer income prospects, rising consumer and business confidence, a broadening housing recovery, and reduced fiscal headwinds.
"The December forecast is relatively little changed from the November forecast. We expect a weaker fourth quarter to follow a stronger third quarter, but we don’t see it as a sign of overall weakness," Fannie Mae chief economist Doug Duncan said. "Although real consumer spending growth has disappointed this year, it appears poised to accelerate in November due to a significant jump in auto sales and a likely pick-up in home heating costs. The decrease in oil prices certainly may support consumer spending over time, particularly now during the holiday shopping season, as well as hold down inflation as a potential benefit to consumption. Based on the stronger consumer story that we expect to see in 2015 relative to 2014, we upgraded our forecast from approximately 2.5 percent growth to 2.7 percent growth for the full year."
Duncan said the housing market is expected to continue its slow rate of growth toward long-term recovery in 2015 coming off a sub-par 2014. He said stronger employment and improvement in household-related income is expected to lead in a boost in housing starts.
"As a result, that may help to unfold some of the suppressed household formation numbers and incent builders to meet some of that increased demand," Duncan said. "For all of 2015, we expect total housing starts to increase by about 22 percent and total home sales to rise approximately 5 percent, with total mortgage originations ticking up slightly to $1.13 trillion."