Fannie Mae: Tax reform poses positive risk to economy in 2018

2017 outlook remains steady despite hurricanes

The recent hurricanes did not cause a major shift in the outlook on economic growth in 2017 or beyond, according to the Fannie Mae Economic and Strategic Research Group’s October 2017 Economic and Housing Outlook.

The GSE explained that going into 2018, Fannie Mae predicts economic growth will moderate to 1.8%. While it sees an upside risk from potential tax reform, this is offset by the potential downside risk from restrictive trade policy and geopolitical tensions.

During the third quarter, the report explained consumer spending growth likely weakened, and residential investment declined sharply. However, this was partially offset by increases in business equipment investment, inventory investment and trade.

But despite all these changes, Fannie Mae kept its full-year economic growth forecast unchanged at 2.2%.

“While we expect full-year economic growth for 2017 to come in at the same rate projected in our prior forecast, we now believe that total home sales will be essentially flat this year compared with the moderate rise predicted in the prior forecast,” Fannie Mae Chief Economist Doug Duncan said. “Despite muted underlying inflation, we continue to expect the Fed to raise rates for the third time this year in December.”

This outlook for a third rate hike this year is shared by most experts, including Federal Reserve Chair Janet Yellen herself.

And while they may not affect the overall economic growth, the report shows recent hurricanes did create a drag on home sales, which were already suppressed by low levels of housing inventory.

“The impacts from this season’s hurricanes on the U.S. economy were wide-ranging but should dissipate over time. These include the loss of momentum in consumer spending and residential investment, as well as a decline in September payrolls and August home sales and contract signings,” Duncan said.

“We expect economic activity to rebound in coming months,” Duncan added. “The recovery will likely be slower for home sales and home building, however, as the labor shortage and rising material prices will likely worsen after the hurricanes, exacerbating already-tight inventory.”

In the last Pending Home Sales report, the National Association of Realtors explained the slow pace of home sales signal the housing market is now essentially stalled.

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