Fannie: Economy Slows, Modest Growth Still Expected

The revised figures for economic growth in the year's first quarter were disappointing, but ""Fannie Mae's"":http://www.fanniemae.com/portal/index.html Economic & Strategic Research Group is still forecasting moderate growth for the remainder of 2012.

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A report released by the group Tuesday projected 2.2 percent growth for all of 2012. Several factors presented risks to the economic outlook, including a slowing trend in job growth, potential contagion in the euro zone from Greece's financial issues, the slowing Chinese economy, and the potential of a fiscal drag in the United States. Consumer attitudes also influence the economic outlook.

""Consumers remain key to the overall outlook, as attitudes appear to be reaching a plateau after a few months of improvement early in the year. Loss of momentum in labor market conditions, sluggish

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income growth, and decreasing saving rates suggest that consumers may need to moderate spending unless income picks up,"" the group said in a release.

While the slow pace of economic activity in the spring was not necessarily unexpected, the threat that outside risks present to the economy had an effect on the group's forecast.

""For the third year in a row, we are experiencing a spring lull in economic activity,"" said ""Doug Duncan"":http://www.fanniemae.com/portal/about-us/company-overview/leadership/duncan.html, chief economist at Fannie Mae. ""Our view is that the underlying resilience of the economy and of consumers in particular that has been demonstrated during the past couple of years will persist. However, the magnitude of the uncertainties surrounding the European debt crisis and our fiscal condition here in the U.S. implies that the risks to the outlook are clearly titled to the downside.""

Home sales have increased 8 percent year-over-year, with sales being bolstered by increased affordability and record low interest rates. However, it should be noted that the current ""high"" numbers are only an increase compared to depressed levels from 2011.

The group maintains ""cautious optimism"" for the slow recovery of the housing market despite weak employment growth, rising student loans, and a continuing stream of foreclosed households.

Home price values have stabilized in recent months as the share of distressed sales has declined. Despite this trend, the group continues to expect that home prices will show a slight decline before bottoming out in the beginning of 2013.