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Fannie Mae: Economic growth will probably stay slow and stable

Despite decade highs in pending home sales

Despite an increase in housing activity and consumer spending, Fannie Mae’s economic and Strategic Research Group’s full-year economic growth forecast remains unchanged at 1.7% in June.

The shockingly low jobs report that recently came in showed the uneven nature of the economic expansion, therefore keeping the forecast from increasing from last month.

“Housing activity is gaining strength heading into the summer, with pending home sales rising to a decade high,” Fannie Mae Chief Economist Doug Duncan said. “In addition, new home sales surged to an expansion best, a positive for single-family homebuilding, especially since only a small share of new homes for sale are completed and ready to occupy.”

“However, recent pullbacks in construction hiring, likely due to a shortage of skilled workers, could weigh on the outlook for the sector,” said Duncan. “With little improvement in the current housing supply picture so far, we expect only moderate housing expansion this year.”

But the slowing trend in hiring and business investment isn’t the only thing increasing the downside risks to the forecast. Other headwinds include declining profits, weakening productivity and rising labor costs.

“The bearish May jobs report signaled a further loss of momentum in the labor market,” Duncan said.

“Weak hiring and downward revisions to the prior two months’ payroll gains contributed to the Fed’s decision not to raise interest rates in June,” Duncan said. “Our expectation, which we’ve held since April, remains one rate hike this year, most likely in September.”

3d rendering of a row of luxury townhouses along a street

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