Economic Developments – November 2017

© 2017 Fannie Mae. Trademarks of Fannie Mae. 11.13.2017 1 of 5

Economy Remains Resilient Despite Hurricanes

The expected economic hit from the recent hurricanes did not 

materialize or was drowned out by growth in business optimism. 

The pickup in business fixed investment and inventory building 

has the economy growing at a 3 percent pace currently. The 

impact of the significant decline in the pace of regulatory growth 

combined with the expectation of tax cuts (or reform) and the 

high level of auto sales has the economy humming along.

The first print of third quarter real gross domestic product (GDP) 

showed that economic growth slowed by only one-tenth from the 

second quarter to 3.0 percent annualized despite hurricanerelated disruptions, marking the first back-to-back quarters of at 

least 3 percent growth since 2014. The third quarter estimate

was six-tenths stronger than our forecast. Incoming data over the 

past month generally showed a pickup in domestic demand at the 

end of last quarter, leading us to revise slightly higher our forecast of 

fourth quarter growth. For all of 2017, we expect growth of 2.4 

percent, two-tenths higher than in the prior forecast. We forecast that

growth will moderate to 2.0 percent in 2018. A tax cut, if enacted, 

presents some upside risk to growth in 2018.

Strong headline third quarter growth masked weaker domestic 

demand, which softened in part because of the hurricanes. 

Consumer spending growth slowed nearly 1 percentage point from 

the prior quarter to 2.4 percent annualized, contributing 1.6 

percentage points to GDP growth. While business investment in 

equipment increased strongly for the second consecutive quarter, 

the first decline in three quarters of nonresidential investment in

structures caused overall nonresidential fixed investment 

growth to slow between the second and third quarters. 

Housing remained a soft spot, as the residential investment 

component dragged on the economy for the second 

consecutive quarter, subtracting 0.2 percentage points from 

growth.

Inventory investment and net exports were the two main 

components of GDP that added more to growth in the third 

quarter than in the second quarter. As a result, final sales to 

domestic purchasers—GDP excluding the impact from net 

exports and inventories—grew just 1.8 percent annualized

versus a 2.7 percent rise in the prior quarter, pointing to 

weakening underlying domestic demand. Net exports have

contributed to growth in every quarter so far this year, thanks 

to the declining dollar and a pickup in growth abroad. 

The dollar fell around 10 percent against major currencies between December 2016 and September 2017 but has 

strengthened since, perhaps due to renewed optimism over the potential passage of tax cut legislation. The rising trend in 

the dollar is unlikely to last if major central banks abroad further remove monetary policy accommodation. The Bank of 

Canada and the Bank of England have started to raise interest rates and the European Central Bank is expected to wind 

down its quantitative easing program next year.

-1.0% 0.0% 1.0% 2.0% 3.0% 4.0%

Government Consumption and

Investment

Net Exports of Goods and Services

Change in Private Inventories

Residential Fixed Investment

Nonresidential Fixed Investment

Personal Consumption Expenditures

GDP

Contribution to Real GDP Annualized % Change

Housing Drags on Economic Growth Again

Q2 2017

Q3 2017

0%

1%

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4%

5% Q3-'14 Q4-'14 Q1-'15 Q2-'15 Q3-'15 Q4-'15 Q1-'16 Q2-'16 Q3-'16 Q4-'16 Q1-'17 Q2-'17 Q3-'17 Real Annualized GDP Growth (SAAR, Chn.2009$)

Strong Headline Growth Masks Weaker Domestic Demand, Partly Due to Hurricanes

Final Sales to Domestic Purchasers

Gross Domestic Product

Note: Final sales to domestic purchasers is gross domestic product less net exports and change in private inventories

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1

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1

-10%

-8%

-6%

-4%

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6%

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

Real Annualized GDP Growth (SAAR)

Economy Posts Strongest Back-to-Back Growth Since 2014
© 2017 Fannie Mae. Trademarks of Fannie Mae. 11.13.2017 2 of 5

 

Despite the recent weakness, we expect domestic demand growth to pick up in the current quarter. Core capital goods 

orders (nondefense durable goods orders excluding aircraft), which are a forward-looking indicator for business 

investment in equipment, rose in September for the third straight month and the fifth time in six months. A rollback in 

regulation, rising energy prices that have boosted mining machinery orders and related energy exploration activity, the 

decline in the dollar, and a pickup in economic growth abroad have helped spur business capital expenditures. 

Consumer spending should pick up and contribute more to growth this quarter. Despite softening in the third quarter, 

consumer spending gained momentum at the end of the quarter. Real consumer spending jumped 0.6 percent in 

September after declining in the prior month for the first time since January amid real personal income that was flat for the 

second consecutive month. Part of the increase in spending came from robust replacement demand for vehicles damaged 

during the hurricanes. However, spending on nondurable goods 

and services also posted solid gains in September. Auto sales 

cooled only slightly in October, pointing to continued robust 

replacement sales. We expect real consumer spending growth to 

rebound to 3.0 percent annualized this quarter.

One concern related to recent income and spending trends is the 

decline in the saving rate to an expansion low of 3.1 percent in 

September. After stabilizing in late 2016, the saving rate resumed 

its downward trend in February of this year, suggesting that 

consumers will have less cushion from savings to support nearterm spending. 

Meanwhile, consumer credit outstanding posted the biggest 

monthly jump in September since last November, with strong 

increases in both revolving (largely credit card) and 

nonrevolving (largely auto and student loans) debt. Notably, the 

annual increase in revolving debt accelerated in September for 

the first time in four months. One headwind for consumer credit 

is continued tightening of lending standards for auto loans and 

credit cards, according to the Federal Reserve Senior Loan 

Officer Opinion Survey for the three months ending in October. 

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'14 '15 '16 '17

Trade Weighted U.S. Dollar Index (Broad Index Jan 1997=100)

The Dollar Has Recently Moved Up

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 $45

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'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 New Orders for Nondefense Capital Goods ex Aircraft (SA, Bil.$)

Core Capital Goods Orders Bode Well for Capital Expenditures Outlook

3.0%

3.5%

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1.0% Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 SAAR, % SAAR, Chn.2009$, M-o-M % Change

Consumer Spending Jumps, as the Saving Rate Declines

Personal Consumption Expenditures Personal Saving Rate (Right Axis)

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15%

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

Consumer Credit Outstanding (EOP, NSA, Year-over-Year % Change)

Revolving Credit Growth Picks Up for the First Time in Four Months

Revolving Credit

Nonrevolving Credit
© 2017 Fannie Mae. Trademarks of Fannie Mae. 11.13.2017 3 of 5

The November jobs report showed that nonfarm payrolls 

rebounded in October by 261,000 on the heels of upward revisions 

that added 90,000 jobs to the hurricane-affected months. The 

average monthly job gain for the last three months was 162,000, 

compared with a year-to-date average monthly gain through July 

of 171,000. The slowdown in hiring is to be expected as the labor 

market inches closer to full employment. Leisure and hospitality 

payrolls, which shed 102,000 jobs in September, gained 106,000

jobs in November. The average workweek was unchanged at 34.4 

hours for the fourth straight month. Average hourly earnings were 

flat, bringing annual wage growth down to 2.4 percent, a fourtenths decrease from the solid gain of the prior month, when the 

hurricanes prevented many low-wage employees from working.

The household survey results were mixed. The unemployment 

rate fell one-tenth to 4.1 percent, reaching the lowest level since December 2000. However, the labor force participation 

rate plunged by 0.4 percentage points in October, the biggest monthly decline in four years, to 62.7 percent. In another 

sign of a tight labor market, the broadest measure of labor underutilization, which includes discouraged workers and parttime workers who want full-time jobs, fell to 7.9 percent, matching the lowest rate of the last expansion.

 

The number of part-time workers who want full-time jobs has 

trended down sharply over the past year. That number 

plunged 7.2 percent in November to the lowest level since 

December 2007, when the economy slipped into recession, 

underscoring receding slack in the labor market. 

Earnings unadjusted for the composition of employment have 

shown lackluster growth. The Employment Cost Index (ECI), a 

gauge of labor compensation that includes wage and salaries,

as well as benefits, has drifted higher. The ECI rose 0.7

percent during the third quarter and 2.5 percent from a year 

ago, the second strongest annual rise of this expansion. 

Recent acceleration in ECI growth suggests that tightening in 

the labor market has put upward pressure on compensation.

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'00 '02 '04 '06 '08 '10 '12 '14 '16

Unemployment Rate Falls to 16-Year Low Amid Large Drop in Labor Force Participation Rate

Civilian Labor Force Participation Rate

Civilian Unemployment Rate (Right Axis)

6%

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'00 '02 '04 '06 '08 '10 '12 '14 '16

U-6: Unemployed and Marginally Attached as a % of Labor Force

Broadest Measure of Labor Underutilization Ties Low of Last Expansion

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350 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Change in Nonfarm Employment (SA, Thous., Month-over-Month )

Nonfarm Payrolls Rebound in October on the Heels of Upward Revisions to Prior Months

Initial Estimate Revised Estimate

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'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 Work Part Time: For Economic Reasons: All Industry (SA, Thous)

Part-time Workers Who Want Full-Time Jobs Declines to the Lowest Level Since Recession
© 2017 Fannie Mae. Trademarks of Fannie Mae. 11.13.2017 4 of 5

On the inflation front, the Fed’s favored measure, the Personal 

Consumption Expenditures deflator, rose 0.4 percent in 

September, driven by supply disruptions in the energy sector 

following Hurricane Harvey. The annual increase picked up twotenths to 1.6 percent. However, the annual rise in core prices was 

unchanged at 1.3 percent, the lowest reading since 2015. 

As widely expected, the Federal Open Market Committee (FOMC) 

kept the fed funds rate unchanged at its November meeting. The 

statement following the meeting noted that core inflation 

“remained soft.” Also expected was the nomination of Jerome 

Powell to replace Fed Chair Janet Yellen. It appears that the 

market expects continued gradual monetary policy normalization 

under the new Fed Chair. We continue to expect a rate hike at the 

December FOMC meeting, the third rate rise this year, followed by 

two rate increases in 2018.

Housing Roundup

Housing activity continued its rough patch, pulling back across the board last quarter. Total housing starts fell for the third 

straight quarter, as a drop in multifamily starts outweighed an increase in the single-family segment. Despite an 18.9 

percent surge in September to a fresh expansion high, new home sales fell during the third quarter. Existing home sales 

also declined last quarter, as sales recovered only modestly in September, marking the first rise in four months. 

While the hurricanes disrupted activity in the South, housing weakness was present before the hurricanes and largely 

stems from the supply side. Shortages of labor and available lots have restrained building activity. In addition, building 

material prices have jumped, with framing and structural panel lumber prices rising 20 percent and 32 percent, 

respectively, from a year ago. The number of existing homes for sale has declined on an annual basis for more than two 

years, and conditions are unlikely to change in the near term. An extremely lean housing inventory, especially in the 

existing home market, continues to provide a tailwind to home prices, constraining affordability and sales. Main measures 

of home prices, including the Case-Shiller, the FHFA Purchase-only, and the CoreLogic indices, grew by more than 6

percent in August. 

Leading indicators suggest that a meaningful rebound in sales is unlikely this quarter. Pending home sales, which record 

contract signings of existing homes and usually lead closings by one to two months, were flat in September at the lowest 

level since January 2016. Pending sales have declined on an annual basis in five of the past six months. In addition, 

average monthly purchase mortgage applications fell in October for the third time in four months. 

 

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12% Q1-'15 Q2-'15 Q3-'15 Q4-'15 Q1-'16 Q2-'16 Q3-'16 Q4-'16 Q1-'17 Q2-'17 Q3-'17 SAAR, Quarter-over-Quarter % Change

New and Existing Home Sales Decline for the Second Consecutive Quarter

Total Existing Home Sales New Single-Family Home Sales

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Leading Indicators Paint an Uninspiring Picture of Near-Term Outlook for Home Sales

Mortgage Applications for Purchase Index

Pending Home Sales Index (Right Axis)

1.0%

1.5%

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3.0%

3.5%

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

ECI: Wages & Salaries: Civilian Workers (SA, Dec-05=100, Y-o-Y % Change)

The Annual Rise in the Employment Cost Index Climbs to Near Expansion High
© 2017 Fannie Mae. Trademarks of Fannie Mae. 11.13.2017 5 of 5

One positive for the single-family housing market is that the homeownership rate increased in the third quarter on an 

annual basis for the third consecutive quarter, supporting our view that the rate has stabilized. The rental market, on the 

other hand, shows some signs of softening. The vacancy rate for all rental housing types rose on a year-over-year basis 

for the second consecutive quarter to reach 7.5 percent, the highest reading in more than three years. The rising rental 

vacancy rate was partly due to increased supply of apartment units, especially in the higher-end of the market and in large 

metropolitan areas.

 

We expect mortgage rates to remain low, with the yield on 30-year fixed-rate mortgages averaging 3.9 percent this 

quarter before gradually rising to 4.2 percent a year from now. Because of weaker-than-expected housing starts during 

the third quarter, we revised slightly lower our projections through 2018. At the same time, we revised higher near-term 

existing home sales. We expect total home sales to come in 1.4 percent higher this year than in 2016, with a similar 

increase anticipated for 2018. For all of 2017, total mortgage originations are expected to decline approximately 12

percent from 2016 to $1.81 trillion, with a 12 percentage point drop in the refinance share to 37 percent. Mortgage 

originations are projected to fall further by about 5 percent to $1.71 trillion in 2018, as a decline in refinance originations 

outweighs an increase in purchase originations, leading to a further drop in refinance share to 31 percent. 

For information on multifamily market conditions, read the November 2017 Multifamily Market Commentary.

Economic & Strategic Research (ESR) Group

November 13, 2017

For a snapshot of macroeconomic and housing data between the monthly forecasts, please read ESR’s Economic and 

Housing Weekly Notes

Data source for charts: Bureau of Economic Analysis, the Federal Reserve Board, Census Bureau, Bureau of Labor Statistics, National Association of 

REALTORS®, Mortgage Bankers Association.

Opinions, analyses, estimates, forecasts and other views of Fannie Mae's Economic & Strategic Research (ESR ) Group included in these materials 

should not be construed as indicating Fannie Mae's business prospects or expected results, are based on a number of assumptions, and are subject to 

change without notice. How this information affects Fannie Mae will depend on many factors. Although the ESR group bases its opinions, analyses, 

estimates, forecasts and other views on information it considers reliable, it does not guarantee that the information provided in these materials is 

accurate, current or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially 

different results. The analyses, opinions, estimates, forecasts and other views published by the ESR group represent the views of that group as of the 

date indicated and do not necessarily represent the views of Fannie Mae or its management.

ESR Macroeconomic Forecast Team

Doug Duncan, SVP and Chief Economist Mark Palim, VP and Deputy Chief Economist

Orawin T. Velz, Director Frank Shaw, Economist 

Hamilton Fout, Director Michael T. Vangeloff, Strategic Planning Analyst III

62%

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'80 '85 '90 '95 '00 '05 '10 '15 Homeownership Rate (NSA, %)

Homeownership Rate Stabilizes Further

4%

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12%

'80 '85 '90 '95 '00 '05 '10 '15

Rental Vacancy Rate: United States 

The Rental Market Shows Signs of Softening