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Consumer spending may grow softer

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WASHINGTON, DC – Economic growth is expected to average 2.4 percent in the second half of the year, up from 1.1 percent in the first half but at a slightly slower pace than predicted in the prior forecast, according to Fannie Mae’s Economic & Strategic Research Group’s October  Economic and Housing Outlook.

Although data point to stronger growth in the third quarter, due in large part to improvements in inventory investment and trade, domestic demand appears to have weakened.

Consumer spending retreated in August for the first time since January, and the personal saving rate ticked up, suggesting consumers are feeling increasingly cautious.

Consumer spending growth is expected to continue to soften in the fourth quarter, contributing to moderating economic growth from the third quarter. On balance, the ESR Group’s full-year 2016 forecast remains at 1.8 percent.

“Recent economic data have been a mixed bag – the good, the bad, and the steady,” said Fannie Mae Chief Economist Doug Duncan. “On the upside, the third print of second quarter GDP showed that the economy grew three-tenths higher than in the second estimate, with an encouraging upward revision in nonresidential fixed investment. The steady news comes from the labor market, with relatively decent conditions overall. The biggest doses of bad news come from consumer spending, the linchpin of economic growth, and residential investment, which appears to have posted a second consecutive sizable drop in the third quarter.”

“Emerging signs of improving homeownership demand among young adults have been encouraging. However, housing activity has lost momentum in recent months,” said Duncan. “Existing home sales, new home sales, single-family housing starts, and single-family construction spending declined in August. In addition, pending home sales and purchase mortgage applications weakened during the month, suggesting continued weakness in existing home sales in the near term amid very lean supply.”

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