Economy Posts Gains, but Fiscal Uncertainty Poses Significant Challenges to Outlook

WASHINGTON, Nov. 22, 2012 /PRNewswire/ — Economic activity accelerated in the third quarter, but data continue to show a sluggish recovery overall, according to Fannie Mae’s (FNMA/OTC) Economic & Strategic Research Group. Since its low point in 2009, U.S. gross domestic product has climbed 7.2 percent, compared with an average growth of 16 percent for economic recoveries since the 1960s over the same period. Consumer spending was the biggest driver of growth in the third quarter, accounting for approximately 70 percent of GDP. Notably, however, consumer and business confidence may weaken in the coming months due to the looming fiscal cliff and debt ceiling debate, which are likely to create the most significant barriers to meaningful growth.

“The tone of the economic data we’ve seen during the past month has been modestly favorable, but our expectations for growth this year remain subdued,” said Fannie Mae Chief Economist Doug Duncan. “While the pick-up of activity in the third quarter is encouraging, it is compared to the weak pace seen in the second quarter and doesn’t portend a robust recovery in the near term. More encouraging, perhaps, is that the slight increase in consumer spending appears to have fed into the overall housing market data, particularly home sales and starts.”

Recent data continue to point to a gradually strengthening housing recovery. Both existing and new home sales posted gains in the third quarter from the second quarter, and the year-over-year home sales price rate saw the largest increase since 2006 at 5 percent. Contrary to the past six years, during which the housing market created a drag on economic growth, housing is expected to contribute to GDP this year with an additional increase in 2013. However, as it accounts currently for only 2.5 percent of GDP, such growth isn’t likely to provide a substantial boost to the economic recovery.