Stuck at Subpar Growth

Lackluster Consumer Spending Presages Continued Moderate Economic Growth

Outlook Remains Positive for Gradual Housing Recovery

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Aug 21, 2012, 09:00 ET

WASHINGTON, Aug. 21, 2012 /PRNewswire/ -- Economic activity slowed during the first half of 2012, fueled by a decline in the pace of consumer spending amid a sluggish labor market. Inflation-adjusted consumer spending growth dropped nearly a percentage point during the second quarter to a one-year low of 1.5 percent, as spending fell in June for the first time since last August. However, strong July retail sales helped soothe concern of another pullback. In addition, the July jobs report posted the strongest gain in five months with 163,000 new jobs created. If sustained, such job growth may bolster weak consumer and small business confidence, helping to offset headwinds presented by the domestic policy environment and European debt markets. While modest economic growth is still expected through the end of this year, risks to the outlook remain on the downside, according to Fannie Mae's (OTC Bulletin Board: FNMA) Economic & Strategic Research Group.

"The July data hasn't changed our forecast for slow growth in 2012, but we're increasingly focused on the looming 'fiscal cliff' near year-end," said Fannie Mae Chief Economist Doug Duncan. "The debt ceiling debate, as well as current legislation that could create a drag of more than 4 percent on GDP in 2013, may spur further caution among consumers and businesses alike. On the bright side, we continue to see positive trends in the housing sector, which is showing signs of a durable, long-term recovery."

In contrast to an otherwise dim economy, the broad housing outlook has stayed generally positive. The expected increase in home sales in 2012 over 2011 remains steady at approximately 9 percent and home price expectations for the remainder of the year are now trending upward. Inventories have dropped significantly during the past 12 months, and the resulting tighter supply has helped boost homebuilding activity in some areas. Overall, residential investment is expected to contribute approximately 0.2 percentage points to real GDP in 2012 – the first annual contribution since 2005. However, despite many positive indicators across the housing sector, any growth is likely to keep a modest pace due to other factors, including tight credit standards and an elevated level of foreclosures facing the market in the coming years.

For an audio synopsis of the August 2012 Economic Outlook, listen to the podcast on the Economic & Strategic Research site at www.fanniemae.com. Visit the site to read the full August 2012 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.

Fannie Mae exists to expand affordable housing and bring global capital to local communities in order to serve the U.S. housing market. Fannie Mae has a federal charter and operates in America's secondary mortgage market to enhance the liquidity of the mortgage market by purchasing or guaranteeing mortgage loans originated by mortgage bankers and other lenders so that they may lend to home buyers. Our job is to help those who house America.

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SOURCE Fannie Mae