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GDP growth is solid, economists say

Although growth slowed to end the year, housing economists were generally upbeat about the pace of the economy headed into 2018.

Real Gross Domestic Product (GDP) increased at an annual rate of 2.6 percent in the fourth quarter of last year, down from 3.2 percent in the third quarter, the Bureau of Economic Analysis reported last week. Real GDP growth for the year was estimated at 2.3 percent, higher than the 2016 full-year level of 1.5 percent. Accelerated growth, combined with higher wages, should continue to spur demand for housing and mortgages this year, according to economists.

economy“It is a pretty good number,” Fannie Mae Chief Economist Doug Duncan told Scotsman Guide News on Monday.“It is not gangbusters, but it is definitely a pickup from the performance that the economy had been having.”

Duncan said that advance GDP reading published last week will likely be revised and the final numbers will show GDP growth at around 2.75 percent for the year. Duncan expects GDP growth to get a half a percentage point boost in 2018 over the 2017 number from regulatory reform and lower taxes. He said the lower-than-expected growth this past fourth quarter came about because companies, on net, wound down inventories.

Consumer spending picked up in the fourth quarter.

“Consumers spent, not at gangbusters, but strong, but they also drew down savings,” Duncan said. “We will be watching the consumption number. We have a little less consumption in our forecast for 2018 than others do, just because we think the savings rate is getting pretty low, and people are going to rebuild those savings over the course of the year.”

Prices generally rose in the fourth quarter, but not at a pace that would worry economists. The price index for personal consumption expenditures (PCE index), excluding food and energy prices, increased 1.9 percent in the fourth quarter, compared with an increase of 1.3 percent for the third quarter. For the year of 2017, that index rose 1.5 percent, compared with the higher increase of 1.8 percent in 2016.

“We are just wondering where the inflation fears are coming from,” Duncan said. “There is lots of discussion, but not much evidence of it.”

Duncan said the advance GDP data was unlikely to pull the Federal Reserve off its course of gradual rate increases. Fannie is predicting one-quarter percent increases will come in March and in September. Most market analysts are predicting three rate hikes in 2018.  

National Association of Realtors (NAR) Chief Economist Lawrence Yun also said the 2.3 percent yearly GDP growth “was respectable.”

“That’s a good comeback, considering a very weak start of only 1.2 percent growth in the first quarter,” Yun said.  

The housing market performed “reasonably well,” he said. Overall housing starts fell short of the 1.5 million historical average by around 300,000 units.

“This underproduction is the principal cause of the ongoing housing shortage, and why the economy did not fully get back up to 3 percent GDP growth possibility last year,” Yun said. “Even in the private business sector, spending for equipment and software soared, but not for commercial building constructions.”

Yun said that the recent tax overhaul should provide the economy with “a lift,” and GDP growth of 3 percent is likely in 2018. 


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