According to Fannie Mae’s Economic and Strategic Research (ESR) Group, expectations for a full-year 2021 real GDP growth are at 7.0% — little changed from their previous outlook. However, meaningful compositional and temporal shifts are now projected for the underlaying sources of economic growth.
Slightly weaker-than-expected consumer and construction spending data and an updated federal spending timeline from the Congressional Budget Office led the ESR Group to update its forecast to reflect a larger share of 2021 economic growth occurring in the second half of the year. Second quarter growth is now expected to clock in at 8.1%, down from last month’s projected 10.1%, while third and fourth quarter growth projections were revised upward by 0.7 and 1.2 percentage points, respectively, to 7.1% and 6.6%.
Additionally, the ESR Group expects that business inventory investment and government spending will account for an increasing share of near-term economic growth, as spending by consumers shifts toward services and away from goods. Amid record demand for housing and extremely limited inventory in the first half of the year, the ESR Group significantly upgraded its home price forecast, as measured by the FHFA Purchase-Only Index, to 14.8% annualized in 2021, up from its prior forecast of 8.0%. However, home purchase demand is expected to soften modestly moving forward.
In remarks prepared for the release of the ESR Group report, Mark Palim, Fannie Mae’s Vice President and Deputy Chief Economist said, “While recent home price growth has been historically high, we’re forecasting further home price appreciation to moderate through the remainder of the year and into 2022.”
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Economy Transitioning from Consumer-Led Recovery to More Balanced Growth as Inflation Risks Remain