Although a stagnant growth pattern dominated the first quarter, the economy is expected to gain momentum in the second quarter, in part due to a future improvement in the housing sector, according to Fannie Mae's Economic & Strategic Research Group.
Other factors contributing to growth include consumer and business capital spending, relief from fiscal policy concerns, an increase in government spending, and a diminishing drag from a slowdown in inventory stockpiling, says the group, in its April Economic and Housing Outlook report.
Doug Duncan, chief economist for Fannie Mae, says this is the "first time in five years" that government spending will aid in the growth.
"We have downgraded our housing forecast slightly due to a lackluster sales picture, but the recent loss of momentum is likely a temporary one," says Duncan. He expects housing to contribute 0.3 percentage points to overall economic growth in 2014, with new home sales rising at a double-digit pace: up to 1.05 million units, which is up from 925,000 from last year. However, because of "builders' credit and labor constraints," it is 50,000 fewer than Fannie Mae expected at the beginning of the year.
Although economic activity in the first quarter likely slowed more than expected in the prior forecast, the group continues to forecast 2.7% growth for all of 2014 – not much different from the 2.6% pace last year, says Fannie Mae.
"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," says Duncan. "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."
In terms of consumer confidence, Duncan forecasts it will go up during the year, in part due to "improving financial market conditions and household net worth."
"However, 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, he adds, the group believes real consumer spending will reach 2.8% this year, which is .05% higher than last year's rate.