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Home | Daily Dose | Fannie Mae Revises First Quarter Forecast
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Fannie Mae Revises First Quarter Forecast

The latest economic forecast from Fannie Mae shows that the underwhelming performance of the economy in the first three months of the year and a shrinking GDP have significantly dulled the optimism economists once had for the overall 2014 economy.

The latest economic forecast from Fannie Mae shows that the underwhelming performance of the economy in the first three months of the year and a shrinking GDP have significantly dulled the optimism economists once had for the overall 2014 economy.

Fannie Mae stated that the rough U.S. first quarter has caused its Economic & Strategic Research Group to reduce 2014 economic growth expectations. For the year, the Group forecasts economic growth of 2.1 percent, which is half a percentage point below the 2013 pace.

Fannie's sentiments were part of a one-two punch this week in which the Bureau of Economic Analysis released a revised (and sobering) look at the state of the nation's economy and found that real gross domestic product was down 2.9 percent in the first quarter—the fastest rate of decline in the GDP since 2009.

According to Fannie, the reversal of an unsustainable buildup in inventory investment shaved 1.6 percentage points from GDP in the first quarter, worse than originally thought. The first reports about the slumping GDP claimed a 0.6 percentage point drag. The drop, whatever the numbers, is being blamed on disruptive weather—particularly in the East, where winter hung on much longer and with more venom than usual—and a rare drop in real exports.

The tentative good news is that second quarter activity shows signs of actual improvement, but even that sheen is dulled by the reality that any strength during the remainder of the year will not likely be enough to overcome first-quarter doldrums.

Still, no one is calling for anything terrible to happen, and Fannie's chief economist, Doug Duncan is keen to remind consumers and economists alike that there actually is a lot of positive happening within the morass—it's just a matter of cooler heads and less hyperbole right now.

"Consumer spending appears to have been the only real contributor to growth in the first quarter," Duncan said. And although spending dipped again in April, it seems to have rebounded in May. "Consumers should get a boost going forward due to continued rising household net worth."

Net worth is indeed rising, and at a good pace. Duncan said, however, that net worth remains well below its 2006 peak. Labor market conditions, which have showed steady-though-unspectacular gains, are also positive signs pointing to growth.

Home price improvements have contributed to consumers' household wealth, Duncan said, but overall growth in the housing market pulled back in the first quarter, with major housing indicators coming in lower year over year compared to the first quarter of 2013.

More recent housing indicators were mixed, with only moderate improvement despite the decline in long-term interest rates. Duncan said he expects total home sales in 2014 to be about 2 percent lower than in 2013, with new home sales advancing somewhere in the 12-15 percent range. Existing home sales, however, are likely to decline year over year.

About Author: Scott Morgan

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Scott Morgan is a multi-award-winning journalist and editor based out of Texas. During his 11 years as a newspaper journalist, he wrote more than 4,000 published pieces. He's been recognized for his work since 2001, and his creative writing continues to win acclaim from readers and fellow writers alike. He is also a creative writing teacher and the author of several books, from short fiction to written works about writing.

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