Signs Point to Economic Volatility in the Near Term

Consumers Brace for Winter of Discontent Amid Upcoming Policy Decisions

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Nov 21, 2013, 09:00 ET

WASHINGTON, Nov. 21, 2013 /PRNewswire/ -- The temporary government shutdown and debt ceiling negotiations dealt a blow to consumers in October, and foreshadows likely continued market volatility during the next few months, according to Fannie Mae's (OTC Bulletin Board: FNMA) Economic & Strategic Research Group. In line with previous forecasts, the Group expects modest economic growth of approximately 2.0 percent for 2013 as a number of unresolved fiscal and monetary policy decisions weigh on consumer confidence. Factors including the appointment of a new Federal Reserve chair in January and the budget and debt ceiling issues that will remain through the first few months of next year are expected to suppress consumer spending – a key driver of economic growth. However, growth still is expected to pick up to 2.5 percent for 2014 once the fiscal drags wane and as labor market conditions improve further.

"The November economic and housing forecast reflects many of the themes we saw last month, specifically regarding the effect of the policy decision process on consumer attitudes," said Fannie Mae Chief Economist Doug Duncan. "Monthly data showed weakening momentum in real consumer spending and suggest a reluctance among consumers to take on more debt. Notably, third quarter data show that consumption grew at 1.5 percent, which is significantly lower than the average annual increase of 3.4 percent between the end of World War II and the year 2000. The modest consumer spending levels in recent months are consistent with the bearish trend in consumer confidence, which dropped significantly in the fall amid the fiscal standoff. Since many remaining policy decisions will spill over into the beginning of next year, it seems likely that both consumers and businesses will continue to pull back in the interim, lending to increased volatility in the markets."

Sentiment toward housing also worsened following the government shutdown and debt ceiling debate despite low single-family mortgage rates and continued robust year-over-year home price gains. According to Fannie Mae's October National Housing Survey results, home price growth expectations continued to moderate, the share of consumers who expect home prices to go up in the next 12 months fell sharply, and the share who say it's a good time to buy a home had the biggest ever one-month change, declining to a survey low.

For an audio synopsis of the November 2013 Economic Outlook, listen to the podcast on the Economic & Strategic Research site at www.fanniemae.com. Visit the site to read the full November 2013 Economic Outlook, including the Economic Developments Commentary, Economic Forecast, Housing Forecast, and Multifamily Market Commentary.

Opinions, analyses, estimates, forecasts, and other views of Fannie Mae's Economic & Strategic Research (ESR) Group included in these materials should not be construed as indicating Fannie Mae's business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the ESR Group bases its opinions, analyses, estimates, forecasts, and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current, or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts, and other views published by the ESR Group represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.

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SOURCE Fannie Mae