Fannie Mae's latest Economic & Housing Outlook reported that the GSE's economics team expects Q3 real gross domestic product (GDP) to grow at an annualized pace of 30.4%. This represents an increase from Fannie's August forecast of 27.2%. For the full year of 2020, the report projects a 2.6% contraction—representing an improvement over last month’s forecast of a 3.1% decline.
"While the pace of economic growth has clearly slowed relative to May and June, recent data point to a continued recovery," Fannie reported. "Real personal consumption expenditures (PCE) posted the third straight month of gains in July, rising 1.6%, though this represented a deceleration from 5.7% in June."
Fannie Mae's previous forecast anticipated that the July gain in PCE would be followed by an August pause in August "as the enhanced unemployment benefits expired, before growth resumed later in the year." However, this latest Economic & Housing Outlook finds that "recent data suggest continued growth in consumer spending over the month. Auto sales, an early indicator of PCE, posted another solid gain in August, rising 4.5%, and credit and debit card transactions data points to increasing spending as well."
Analyzing recent measures of capital goods shipments and construction activity, the Fannie Mae report suggests that both business and housing investments "will grow at a faster pace in the third quarter than we previously forecast." Fannie adds, "This expected stronger growth in Q3 indicates a smaller remaining recovery gap."
Combined with an "updated assumption" that no additional stimulus legislation will be passed prior to the elections, Fannie said it "downgraded its GDP growth estimate for the fourth quarter to 6.2% annualized from our prior forecast of 8.7%."
The report predicted that, into 2021, "behavioral adaptations to the coronavirus will be a factor," limiting the future pace of recovery in some sectors (such as hospitality, travel, and other industries affected by social distancing).
The report proceeded to outline ways in which the housing data over the past month continued to "show a strong V-shape rebound, helping drive the broader economy."
Data and analysis showed that risks to the forecast "remain elevated."
As COVID-19 cases in the U.S. continue to trend downward, Fannie Mae notes that "if and when vaccines become widely available and utilized will likely affect the path of future consumer behavior. Additionally, uncertainty surrounding fiscal and other policies remains high as the election approaches."
The study further details anticipated risks related to the labor market, housing supply, as well as refinance and mortgage rates. The entire study can be accessed here.