Citing government data showing that business owners invested more into their businesses during the second quarter, Fannie Mae says it is sticking with its previous forecast of 3% economic growth for the remainder of 2014.
‘Business spending and confidence are trending up, and we expect to see a healthy increase in business capital investment in the third quarter following the double-digit annualized gain in the second quarter,’ says Doug Duncan, chief economist for Fannie Mae, in a release. ‘Consumer spending fell unexpectedly in July, as more Americans appeared to be building their savings amid weakened income expectations, however a surge in auto sales suggests a reversal in August.
‘If the labor market continues to improve, consumers will likely be more willing to take on additional credit card debt, giving a boost to spending growth,’ Duncan adds. ‘Additionally, a decline in crude oil prices again in August has lowered the cost of gasoline, which we expect to add to disposable income and support spending in the current quarter.’
However, Fannie Mae officials doubt that the improving economic conditions will translate into increased housing activity.
‘Purchase mortgage applications have trended down over the past three months, despite the declining interest rate environment,’ Duncan says. ‘We believe this suggests a residual conservatism on the part of consumers and supports our view that the pace of growth in the housing sector will be subdued during the remainder of 2014, with modest improvement in 2015.’