Economic Growth Expected to Remain Flat

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Financial market conditions appear to be improving as 2016 progresses, but economic growth is expected to remain flat at 2.0 percent this year. Weakness in net exports and oil-related nonresidential investment as well as the ongoing inventory correction process after unsustainable accumulations during the first half of 2015 should combine to drag on growth, according to Fannie Mae's Economic & Strategic Research Group's March 2016 Economic and Housing Outlook. However, positive indicators, including strengthening domestic consumer and business spending and a healthy labor market, should outweigh those negative factors.

"We see lingering effects of the strong dollar, low oil prices, and soft overseas demand creating a drag on economic growth," said Fannie Mae Chief Economist Doug Duncan. "However, the economy appears to have regained some footing after a slowdown in the fourth quarter of 2015, as stocks bounced back and oil prices have risen amid a strengthening labor market. Current labor market and inflation conditions continue to support our expectation of a fed funds rate hike of 25 basis points each in June and December."

"A less optimistic outlook for future wage gains, especially among small business employees, coupled with continued strong home price appreciation boosted by lean inventory, is adding to the housing affordability challenge," said Duncan. "Our latest Home Purchase Sentiment Index™ shows that high home prices are a top reason for consumers' perception that it's a bad time to buy a home. However, low mortgage rates should help support moderate housing expansion as we move through the year."