Although recent indicators suggest the U.S. economy will end the year on a positive note, that momentum is expected to slow in 2012, Fannie Mae's Economics & Mortgage Analysis Group says.
According to the company's analysts, recent positive trends include strengthened employment numbers, economic growth of more than 2.5% (the strongest quarterly growth for the year), better auto sales and slight improvements in housing.
However, concerns about the European sovereign debt crisis and its potential impact on the financial markets remain the biggest risk to the U.S.' economic outlook. The Economics & Mortgage Analysis Group expects that the euro zone has slipped into recession in the current quarter and will likely remain in recessionary territory through the first half of next year, which will likely result in ongoing volatility in the U.S. during 2012.
Moreover, wage, salary income and real disposable income were revised lower for the second and third quarters. Concurrently, real consumer spending rose during both quarters, suggesting that some of the strength in recent spending numbers was due to people pulling money from their savings. According to the group, the saving rate dropped steeply from 4.8% in the second quarter to 3.8% in the third quarter – the lowest level since the fourth quarter of 2007.
"Despite recent near-term improvement, the housing market will likely remain subdued next year – a reflection of the winter season, an expected slowdown in economic activity and a potential increase in distressed sales," says Fannie Mae Chief Economist Doug Duncan. "Moreover, we expect that the country's fiscal problems will be hotly debated over the coming year and will weigh on the market. The very large fiscal impact of pending tax and legislation decisions will likely tamp down overall growth expectations for 2012."