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Economic Growth Stronger Than Expected for First-Quarter

by Natalie Terchek

The Economic Growth  Pace is Above-Trend and Expected to Set a Moderate Pace for the Year

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Economic growth has accelerated to a pace of 3.2 percent, according to Fannie Mae’s Economic & Strategic Research Group. This pace is above-trend, but likely unsustainable. A significant buildup in business inventories provided a one-time boost to first quarter growth and is expected to resume a more balanced level in the second quarter. Meanwhile, several other key indicators late in the first quarter, such as the jobs report, set up a moderate pace for the rest of the year.

Economic Growth is Modest But a Pickup from Previous Years

The Group expects economic growth to come in at approximately 2.3 percent for 2013, which is still modest by recovery standards, but a pickup from the 2012 and 2011 pace of 1.7 percent and 2.0 percent, respectively.

“The April forecast reflects the growing realization that 2013 is off to a good start from a GDP perspective, but we expect the stronger-than-expected first quarter pace to slow somewhat in the second quarter,” Fannie Mae Chief Economist, Doug Duncan, said. “On the downside, tax hikes, sequestration and euro-zone crisis still pose significant risks to our forecast, and the fiscal tightening will likely affect consumer spending and other economic activity in coming months. However, the housing recovery continues to broaden and may be more robust than we anticipate, helping to offset fiscal headwinds.”

The continued housing recovery and increase of home prices are expected to help economic growth this year. According to the Group, residential investment has made a positive or neutral contribution for seven consecutive quarters, ending in 2012, with similar activity expected in 2013. Housing’s contribution to growth also continues to increase as sales reached multi-year highs in the early stages of this year. Overall, the economic growth percentage might not continue to stay at this above-trend pace, but the housing market will definitely continue to recover.

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