Recent Slowdown in Economic Growth Likely Short-Lived

Washington, D.C.—The year’s strong start faded late in the first quarter across many key economic indicators, but the recent set-back likely is a temporary one, according to Fannie Mae’s Economic & Strategic Research Group. Economic growth accelerated in the first quarter as expected, boosted by inventory replenishment following a sizable drawdown in the prior quarter, as well as the strongest increase in consumer spending since the end of 2010. Activity slowed in recent months, partly due to ongoing fiscal drags including the sequester. However, a modest reacceleration is expected in the second half of the year as the labor market regains traction amid further forecasted improvement in financial and housing market conditions. Overall, the Group expects growth of 2.2 percent for all of 2013, continuing a modest recovery following 1.7 percent and 2.0 percent growth in 2012 and 2011, respectively.

The housing market continues to grow at a sustainable, if not yet robust, pace. Housing is expected to act as a tailwind for the economy throughout the year and into 2014, even though there may be short-term ups and downs in overall economic activity. The Group notes some improvement in home purchase demand.  If demand awakens further and more jobs are added each month economic activity should step up compared to 2012 levels with housing acting as a significant contributor to growth.