The economy is doing better than its economists projected

The Fannie Mae Economic and Strategic Research Group again revised upward its full-year 2018 economic growth forecast to 3.0% – from 2.8% in the prior forecast – on expectations that third and fourth quarter inventory restocking will outweigh slowing consumer spending growth and a decline in net exports, according to its August 2018 Economic and Housing Outlook.
The ESR Group also continues to cite trade policy as a key source of downside risk, and again notes that fading fiscal policy impacts and tightening monetary policy are central to its 2.3 growth projection for 2019.
“Breakneck headline growth in the second quarter disguised a detail largely responsible for the latest upward revision to our full-year growth forecast: a need to restock declining business inventories, which we expect will support greater growth amid weakness elsewhere,” said Fannie Mae Chief Economist Doug Duncan. “Housing continues to drag on growth due to lackluster home building activity, home sales, and brokers’ commissions; and its overall weakness likely reflects continuing inventory shortages, rather than a decline in demand. While meaningful wage growth remains elusive, the labor market is strong and inflation appears to be gaining additional steam, making a Fed rate hike in September highly likely. Assuming consumer and business confidence can steer clear of escalating trade tensions, we expect the Fed to raise rates two more times in 2018, including next month.”
The ESR Group said it expects real consumer spending growth to moderate in the third quarter, despite recent evidence that consumers may have more cushions from savings to support future spending than previously believed. "As anticipated, government spending posted a strong increase in the second quarter, reflecting budget-related legislation, but barring new stimulus its impact on growth should begin to dissipate next year," the group stated. "Additionally, following last quarter’s rush by international firms to “pull forward” U.S. imports ahead of previously announced tariffs, the ESR Group expects that trade will return to its previous status as a drag on growth, reflecting both a reversal of last quarter’s surge and the negative effects of the strengthening dollar. For the fourth time in five quarters, residential investment detracted from growth, as housing activity weakened across the board. Tight supply continues to support home price appreciation while posing a challenge to affordability."

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