Forecasts of slowing economic growth have
been the norm for some time, but it is easy to sense greater confidence lately
among those making them. Fannie Mae's
March Economic Developments report is predicting growth will slow from 3.1 percent
in 2018 to 2.2 percent over the course of this year. The company's economists see the boost from
the Tax Cuts and Jobs Act fading, business investment and consumer spending
slowing, and a number of other factors, including several global ones and
others related to trade. They also see
the risks to their forecast being primarily on the downside, although some of
those risks have lessened over the last month.
There have been
some negative milestones in recent months.
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Personal
consumption expenditures slowed from 3.5 percent in the third quarter to 2.8
percent in the fourth due to December's decline in real consumer spending, the
largest in more than nine years.
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Household
financial assets declined in December for the first time since 2015.
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The
U.S. trade deficit hit a 10-year high of $59.8 billion in December, driven by a
surge in imports while exports posted the largest monthly decline in nearly
three years.
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The
February jobs report indicated that the economy added 20,000 jobs, a sharp
decline from the upwardly revised 311,000 jobs added in January and the slowest
pace of job growth since September 2017.
On the other hand:
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Despite
the poor rate of job creation in February, the employment situation remains
solid.
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Wages
rose 0.4 percent in February and 3.4 percent on an annual basis, the best
growth of the expansion.
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The
increase in wages and a drop in spending contributed to a 1.5-point increase in
the savings rate to 7.6 percent, the highest level since January 2016.
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Productivity
rose by 1.8 percent annually in the fourth quarter, breaking out of the 1.0
percent to 1.4 percent range that has prevailed since the end of 2016. Faster
productivity presents upward potential for broader economic growth.

Inflation remains
muted and with the Federal Reserve announcing it would be "patient" about
future rate hikes, Fannie Mae has pushed back its expectations for the next
one. They now expect the Fed to hold
steady until the fourth quarter rather than mid-year as they previously predicted.
They add, if downside risks continue to
dominate there probably won't be any increase in 2019.
Home sales remain
soft compared to a year ago. Annualized
existing home sales were down 8.5 percent in January to 4.94 million, the lowest
since November 2015. New home sales were
down 2.4 percent year-over-year in December (and 4.1 percent in January). The National Association of Realtors' Housing
Affordability Index shows that home buying affordability declined on a
year-over-year basis in January for the 25th consecutive month however things
have improved slightly in recent weeks. Contract
rates on 30-year mortgages fell in February to a monthly average of 4.37
percent, the third consecutive monthly drop. And the S&P Case/Shiller
National Home Price Index indicated that annual appreciation decelerated to 4.7
percent, the slowest pace of growth since September 2015.

The Housing
Vacancy Survey reported that household formation increased by 1.5 million units
year over year in the fourth quarter of 2018 as a sharp expansion in the number
of owner-occupied households over the quarter offset a small contraction in
renter households. In addition, pending home sales rose 4.6 percent in January,
suggesting that closings on existing homes should experience growth in the
coming months.
Prospects for
housing demand remain favorable, but several recent releases suggest that some
momentum has been lost. Following a surge in January, average monthly purchase mortgage
applications fell 10.3 percent in February to a level 1.1 percent above the
December reading, suggesting more modest growth in home sales at the beginning
of the year than was anticipated last month.
Inventories have
been increasing, but still remain far below the 6.0-month level that is
considered a balanced market. The supply of existing home was 3.9 months in
January. The inventory of new homes was
unchanged in December at 7.8 months for the third month and a 25.1 percent increase
in single-family housing starts in January may mean a greater supply of new
homes in coming months.
Fannie Mae's
economists say they continue to expect home sales to hold steady in 2019 at
about 2018 levels but they have lowered their forecast for the first half of
the year because of the decline of purchase mortgage applications. They expect that a portion of those sales will
be recaptured in the second half if mortgage rates remain low.
The downward
revision in sales led to a lowering of predictions for purchase mortgage
originations from $1.181 trillion to $1.176 trillion. This will be a 2.7 percent increase from 2018
rather than the 3.0 percent forecast last month. Refinance originations were lowered from $431
billion to $417 billion in response to a 4-basis point increase in the projection
for mortgage rates in 2019 and are now projected to shrink by 8.6 percent in
2019 from their 2018 level, steeper than the 6.5 percent decline projected in the
February forecast.