Continued positive consumer spending and other domestic fundamentals are expected to offset recent market volatility and support slight improvement in U.S. economic growth in the second half of the year, according to Fannie Mae's Economic & Strategic Research (ESR) Group.
Despite heightened anxiety on Wall Street, data released this past month showed improving economic activity. Consumer spending saw an uptick in July, and the jobs report in August was solid.
Further, full-time employment exceeded its pre-recession peak, and both average hourly earnings and the average workweek increased – signifying a strong gain in personal incomes. The second half of the year is expected to see more growth than the first half, according to the ESR Group.
‘Our forecast for the year is largely unchanged despite recent market volatility. Fundamentals are positive, suggesting potential for some improvement in the fourth quarter,’ says Doug Duncan, Fannie Mae's chief economist. ‘Consumers may get an added boost during the year from subdued inflation, given the stronger dollar and low oil prices. Overall, we anticipate economic growth of 2.4 percent for 2015 – up slightly from 2.1 percent in the prior forecast. Consumer and government spending as well as nonresidential and residential investment are expected to contribute to growth, while net exports and inventory investment will likely pose headwinds.’
Duncan goes on to say that the strong performance of home sales and weakening leading indicators supports the company's previous forecast concerning existing-home sales, but Fannie revised its forecast for purchase mortgage originations due to the lower actual and forecasted cash sales.
‘We anticipate total mortgage originations to increase approximately 25 percent for all of 2015, and total production volume to decrease somewhere in the area of 18 percent in 2016, with the refinance share falling about 15 percentage points,’ says Duncan.