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Fannie Mae increases economic growth predictions for first time in 2017

Forecast increases despite uncertainty following hurricanes

After the Bureau of Economic Analysis increased the second quarter gross domestic product to 3%, Fannie Mae pushed up its full-year growth forecast for the first time in 2017.

The company increased its growth forecast to 2.2% for 2017, up from its previously forecasted 2%, according to the Fannie Mae Economic and Strategic Research Group’s September 2017 Economic and Housing Outlook.

“For the first time in 2017, we have increased our full-year growth outlook,” Fannie Mae Chief Economist Doug Duncan said. “The upgrade reflects economic activity gaining momentum at the end of the second quarter, though we see a great deal of uncertainty surrounding the forecast.”

“The list of uncertainties now extends beyond the geopolitical and legislative, as the effects of Hurricanes Harvey and Irma will require time to untangle,” Duncan said.

This increase is despite the rising economic uncertainty caused by Hurricane Harvey which hit South Texas and parts of Louisiana and Hurricane Irma, which swept through Florida. Geopolitical and trade uncertainties also pose downside risks to economic growth.

Goldman Sachs recently explained the hurricanes could have a significant downward pull on GDP, but that it would quickly bounce back from the drop.

And Fannie Mae cited similar data, saying while the storms may lead to near-term declines, economic activity will quickly rebound.

“Historically, natural disasters that hit heavily populated areas led to substantial near-term declines in economic activity but meaningful rebounds in subsequent quarters due to rebuilding efforts,” Duncan said. “Thus, economic growth in the second half of 2017 could still average a slightly stronger pace than the first half.”

The group explained the increase is due to greater strength in consumer spending and nonresidential investment in the second quarter as well as investment in business equipment.

Housing, however, saw a rough start to 2017 as existing and new homes sales reached year-to-date lows, and could only continue to decrease.

“Unfortunately, we continue to expect home sales to be flat during the second half of the year compared to the first half due to strong home price appreciation and lean inventories,” Duncan said.

But despite these weaknesses, Fannie expects the Federal Reserve will announce it will begin to taper its balance sheet at its September meeting. And while the ESR Group continues to predict a third rate hike in December, it explained there is a growing possibility the interest rate hike will have to hold off until next year.

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

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