Economy Posts Gains, but Fiscal Uncertainty Poses Significant Challenges to Outlook

Growth below Two Percent Expected Through First Quarter of 2013

Housing Market Now Likely to Contribute to GDP

Nov 21, 2012, 09:00 ET from Fannie Mae

WASHINGTON, Nov. 21, 2012 /PRNewswire/ -- Economic activity accelerated in the third quarter, but data continue to show a sluggish recovery overall, according to Fannie Mae's (FNMA/OTC) Economic & Strategic Research Group. Since its low point in 2009, U.S. gross domestic product has climbed 7.2 percent, compared with an average growth of 16 percent for economic recoveries since the 1960s over the same period. Consumer spending was the biggest driver of growth in the third quarter, accounting for approximately 70 percent of GDP. Notably, however, consumer and business confidence may weaken in the coming months due to the looming fiscal cliff and debt ceiling debate, which are likely to create the most significant barriers to meaningful growth.

"The tone of the economic data we've seen during the past month has been modestly favorable, but our expectations for growth this year remain subdued," said Fannie Mae Chief Economist Doug Duncan. "While the pick-up of activity in the third quarter is encouraging, it is compared to the weak pace seen in the second quarter and doesn't portend a robust recovery in the near term. More encouraging, perhaps, is that the slight increase in consumer spending appears to have fed into the overall housing market data, particularly home sales and starts."

Recent data continue to point to a gradually strengthening housing recovery. Both existing and new home sales posted gains in the third quarter from the second quarter, and the year-over-year home sales price rate saw the largest increase since 2006 at 5 percent. Contrary to the past six years, during which the housing market created a drag on economic growth, housing is expected to contribute to GDP this year with an additional increase in 2013. However, as it accounts currently for only 2.5 percent of GDP, such growth isn't likely to provide a substantial boost to the economic recovery.

For an audio synopsis of the November 2012 Economic Outlook, listen to the podcast on the Economic & Strategic Research site at Visit the site to read the full November 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 is a leading provider of mortgage credit in the United States. We guarantee and purchase loans so that families can buy homes, refinance their existing mortgages, or access affordable rental housing. Fannie Mae is focused on assisting homeowners in distress, stabilizing neighborhoods, and encouraging sustainable lending. We are committed to improving our financial condition and our priorities are aligned with the public interest. Our work supports the housing recovery today and is helping to build a better housing finance system for the future.

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SOURCE Fannie Mae