WASHINGTON–Fannie Mae's Economic & Strategic Research (ESR) Group has lowered its full-year economic growth forecast to 1.7%, down from 1.9% growth in the prior forecast and 2.2% at the start of the year.
Fannie Mae said the downgrade is due largely to disappointing first quarter growth of 0.5%.
The ESR Group is projecting economic growth will bounce back as the year continues amid improved financial conditions, with consumer spending remaining an engine for growth and the housing and government sectors making positive contributions. However, it will not be sufficient enough to overcome the damage done during the first quarter of the year, Fannie Mae said.
"Consumers and businesses showed caution at the end of the first quarter," said Fannie Mae Chief Economist Doug Duncan in a statement. "Job creation slowed in April and participation in the labor force gave back some of the recent gains. Nevertheless, the uptick in both hours worked and average hourly earnings should boost labor income and help support consumer spending in the current quarter. In addition, we saw a healthy rebound in April auto sales and greater demand for consumer loans. Fannie Mae added that while the Fed appears to be less worried about financial turmoil abroad, the vote on whether the U.K. will leave the European Union, scheduled to occur about a week after the June Federal Open Market Committee meeting, should keep the Fed from raising interest rates next month."