Faster second quarter economic growth expected, US

Economists expect faster second quarter economic growth in the United States, after a sluggish first quarter. According to Fannie Mae’s Economic & Strategic Research Group, Q2 2014 will see increased government spending and less of a drag from a slowdown in inventory stockpiling.

GDP (gross domestic product) growth should also be boosted by relief from fiscal policy concerns, a better housing sector, and consumer and business capital spending.

2.7% GDP growth for 2014 forecast

Economic growth in the US during Q1 2014 was slower than forecast. Despite this, the Group still expects 2.7% economic growth for 2014, compared to 2.6% in 2013.

Fannie Mae Chief Economist Doug Duncan, said:

“The April economic forecast is similar to February and March, where slow growth has been the common denominator, but we expect to see a slight pickup beginning this quarter. A slower pace of inventory accumulation is likely to weigh on GDP in the first half of 2014 but loosen its hold in the second half of the year as businesses increase production.”

Faster second quarter economic growth

(Source: Fannie Mae – Economic and Strategic Research)

Government spending helping drive growth

For the first time in half a decade government spending should contribute to faster second quarter economic growth, Duncan added. With no more broad-based tax hikes and a less uncertain fiscal policy environment, the private sector should expand more rapidly.

The Group expects consumer confidence to improve during the rest of this year, supported by improving net worth and financial market conditions. However, Duncan warned that “the long-term effects of new healthcare rules and related costs on real consumer spending will need to be monitored in the coming months. Overall, we expect real consumer spending to accelerate to 2.8 percent in 2014, a 0.5 percentage point increase from 2013.”

The outlook for housing sales is less optimistic now, Duncan said. He believes the recent loss of momentum will not last. Housing is expected to add a 0.3 percentage point to GDP growth in 2014.

Even though the existing home sales market has remained flat, the Group believes new home sales will expand “at a double-digit pace.” In 2014, housing starts are forecast to increase by approximately 1.05 million units, compared to 925,000 in 2013, but 50,000 fewer than predicted at the beginning of the year “due to builders’ credit and labor constraints.”

Fannie Mae has published an audio synopsis of the April 2014 Economic Outlook (podcast).

The Conference Board published the US Leading Economic Index for March, which showed a 0.8% improvement to 100.9.

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