Despite improved consumer spending and stronger residential and non-residential investments Fannie Mae’s Economic and Strategic Research team are holding to their earlier forecasts for the second half of 2015. In their current monthly report they estimate that economic growth at an annualized 2.8 percent in the second quarter, up 0.4 percent from what they projected in June, with an acceleration during the second half to about 3.0 percent. They were, they said, already ahead of the game, having upgraded their full year estimate of growth from 1.9 percent to 2.0 percent in June, based on earlier revisions to the GDP.
Consumer spending is expected to be the biggest driver of growth for the rest of the year. It is showing signs of a turnaround accelerating to an estimated 2.9 percent in the second quarter from 2.1 percent in the first and was at an annualized 4.2 percent over the three months ending in May. Housing and government spending will also be a major contributors to growth while net exports will be a drag as will the decline in oil prices over the last year. The debt crisis in Greece still poses a downside risk to the overall forecast as does a deteriorating economic picture in China.
Personal income followed a 0.4 percent gain in April with another 0.2 percent in May and the Consumer Confidence Index jumped 6.8 points from May to June, the second highest reading (tied with March) in the expansion. Adding a bit of frosting, household net worth had its best showing since the third quarter of 2007 and the nation is on track to add 2.5 million jobs this year – less than last year, but still what Fannie Mae calls a “solid” number.
On the housing-related front, residential construction employment dropped precipitously in May but Fannie Mae said it expects home building activity and residential construction employment to pick up along with housing demand. One concern is that builders may find it increasingly difficult to hire skilled workers without substantially raising wages. Wage gains in that sector have picked up after a sharp slowdown last year. This is in contrast to the overall wage growth, which has been moving sideways at approximately 2.0 percent over the past three years.
Senior Director, Coldwell Banker New Homes Division
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