The U.S. Economy was hit by a host of disappointing news in the last month that has caused a downgrade in the overall macro economic forecast by Fannie Mae's Economics & Mortgage Market Analysis Group.
The latest Economic Outlook for August 2011 falls short of calling the downgrade a double-dip recession, but notes the expectation of a growth decline to 1.4 percent in 2011 down from 3.1 percent in 2010. In the first two quarters of 2011,the economy experienced anemic growth of 0.4 percent and 1.3 percent. The projected growth for 2012 has also been lowered from 3.1 percent to 2.0 percent.
Although the Fannie Mae report indicates that the weak recovery will continue into a third year, the chances of the sluggish economy falling back into a double-dip recovery is virtual coin toss.
"Key factors, including revisions to gross domestic product (GDP) data, have revealed that we have a bigger hole to dig out of, which explains the consumer angst over the lack of employment growth," said Fannie Mae Chief Economist Doug Duncan. "Moreover, European financial market and fiscal policy turmoil, coupled with the U.S. debt ceiling debate, have hit on consumer confidence, which is at recessionary levels."
Duncan notes that overall economic concerns are holding consumers back with 70 percent of Americans expressing a belief that the economy is on the wrong track. The concerns about the weakness in the overall economy are also exacerbated by a growing lack of business and consumer confidence fueled by a softening hiring trend.
Related to housing, consumers do not feel that the current economic environment projects a good time to borrower money and buy a home, even with interest rates at historic lows. This is leading to continued housing weakness. The result has been a decline in the rental vacancy rate reaching its lowest rate in nine years.
While home sales contracts signings have increased, suggesting a stabilizing housing market, the relationship of signings to closings have weakened. Data suggests that low appraisals and uncertainty about the economy is leading to higher than normal contract cancelations. The Outlook suggests that home prices will see further declines through 2011 before beginning to stabilize in 2012. This could be hindered by further weakness in the labor markets.