Fannie Mae recently released their reading on the economy for April, along with an economic forecast for key indicators through the end of 2020.
Recent headwinds
Fannie noted a number of recent negative factors weighing on the economy. These included the sell-off in the stock market at the end of last year, the partial government shutdown in January and continued uncertainty as trade negotiations with China and with the EU continue.
The result of all of these factors was a sharp downturn in consumer spending in December, which recovered only weakly in January. There has also been a slowdown in capital goods orders and a rise in business inventories, all negative for the economy.
The good news
The recent softness in economic indicators has cause the Federal Reserve to take a more accommodative stance. At the end of last year, Fed watchers were predicting that the Fed would raise rates twice during 2019. Since the Fed’s March meeting, the consensus view is that there will be no more rate increases this year. Fannie Mae’s economic forecast is for a single rate increase to occur in December, 2019.
After a soft jobs report in February, the jobs market roared back in March with 196,000 jobs being created. The unemployment rate is at a very low 3.8 percent.
Despite a rise in the price of oil, inflation overall has remained within the Fed’s target range, easing the pressure on the Fed to raise rates.
Multifamily construction edged up in 2018 after declining slightly in 2017. However, the mix of multifamily units is now much more heavily weighted to rental units than it was prior to the recession of 2008.
Fannie’s economic forecast
During 2019, Fannie Mae expects the GDP growth to rebound slightly from the 1.8 percent growth seen in the first quarter. Growth is expected to hit a high of 2.4 percent in the third quarter of 2019 before declining in 2020. Annual growth is expected to be 2.2 percent in 2019 and only 1.6 percent in 2020, down from the 3.0 percent rate seen in 2018.
Inflation is forecast to remain in a narrow range with readings of 2.2 percent in 2019 and 2.1 percent in 2020. The 2018 value was 2.1 percent.
The fed funds rate is expected to rise from an average of 1.8 percent in 2018, to 2.4 percent in 2019 and 2.6 percent in 2020.
The jobs market is expected to tighten further with unemployment falling from 3.9 percent in 2018 to 3.7 percent in 2019 and 3.6 percent in 2020.
Multifamily housing starts are expected to fall from 372,000 units in 2018 to 354,000 units in 2019 and 351,000 units in 2020.
Mortgage interest rates are expected to decline from an average of 4.5 percent in 2018 to an average of 4.2 percent in 2019 and 4.1 percent in 2020.
The news release, which contains links to other articles, can be found here.
