Economic Developments – September 2017

© 2017 Fannie Mae. Trademarks of Fannie Mae. 9.11.2017 1 of 4

Hurricanes Cloud Outlook

For the first time this year we changed our full-year 2017 growth forecast, revising it two-tenths higher to 2.2 percent, as 

upward revisions in previously released data increased momentum into the current quarter. However, the devastating 

Harvey and Irma hurricanes will distort economic activity in coming months. It is too soon to estimate the negative impact 

they will have on current quarter growth, which might be severe. Historically, natural disasters that hit heavily populated 

areas led to substantial declines in economic activity in the near term but meaningful rebounds over subsequent quarters

due to rebuilding efforts. We will continue to monitor closely the extent and the duration of the disruptions over the next 

several months. To the extent that we overstate growth in the third quarter in this forecast, we will likely understate it in the 

fourth quarter. Needless to say, there is a great deal of uncertainty surrounding the forecast as we approach the end of 

2017.

President Trump signed legislation to extend government spending 

authority and suspend the debt limit through December 8, which 

essentially pushes fiscal risks to later this year or the first quarter of

2018. On the monetary policy front, the unexpected resignation

announcement of Federal Reserve Vice Chair Stanley Fischer added 

greater uncertainty on Fed leadership and monetary policy. Meanwhile, 

geopolitical risks remain heightened. While the decline in the dollar is a 

positive for net exports, its impact will lag substantially. Finally, a series 

of negotiations on trade agreements generates uncertainty to the 

outlook for the sector, both due to the potential effects on exports and,

just as importantly, on business confidence.

Consumers Step Up 

Real gross domestic product (GDP) growth received a 0.4 percentage 

point upgrade to 3.0 percent annualized in the second quarter in the 

government’s second estimate, thanks to stronger consumer spending 

and nonresidential investment. Monthly data showed that real consumer 

spending grew 0.2 percent in July, following upward revisions in the prior 

three months. The saving rate, which has resumed its downtrend since 

February, ticked down further in July to 3.5 percent, the lowest rate this 

year. Consumers apparently drew down their savings during the second 

quarter to support spending, which grew at a strong 3.3 percent 

annualized and contributed 2.3 percentage points to GDP. 

 

We do not expect the strength in second quarter consumer spending to 

persist. So far, August data point to some softening. Auto sales fell 3.7 

percent, the biggest monthly drop since January, to 16.1 million 

annualized units, the weakest sales pace since February 2014. The 

large drop may have reflected the impact of Hurricane Harvey. We

continue to expect that auto production and sales will drag on the 

economy going forward. However, replacement demand for vehicles 

damaged during the hurricanes could help boost the sector in the near

term.

Labor market conditions showed broad-based softening in August 

following strong results in recent months. Nonfarm payrolls increased 

156,000, with a downward revision of 41,000 jobs in the prior two 

months. The average workweek edged down, and annual growth in 

average hourly earnings remained stuck at 2.5 percent for the fifth 

consecutive month. Other key labor market metrics also disappointed, 

as the unemployment rate ticked up to 4.4 percent amid a flat labor 

force participation rate. However, the three-month average monthly job 

gain of 185,000 still points to a solid job market. 

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Total Light Vehicle Retail Sales 

[Imported+Domestic] (SAAR, Mil. Units)

Auto Sales Peak and Will Drag on 

Consumer Spending

-2.0% -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

Inventory Swing and Consumer Spending 

Boost Second Quarter Growth

Q1 2017 Q2 2017

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

-0.4%

-0.2%

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1.0%

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Jul-17

SAAR, %

SAAR, Chn.2009$, M-o-M % Change

Consumers Lean on Their Savings to 

Increase Spending

Personal Consumption Expenditures

Personal Saving Rate (Right Axis)
© 2017 Fannie Mae. Trademarks of Fannie Mae. 9.11.2017 2 of 4

 

Initial jobless claims data are already reflecting the impact of Hurricane Harvey, which contributed to a 62,000 jump in 

claims for the week ending September 2. We expect incoming jobs reports to reflect the disruptions from the hurricanes

and believe the labor market will take time to recover. Following Hurricane Katrina, nonfarm payrolls fell in September 

2005 before upward revisions showed a moderate gain. It wasn’t until November of that year that payrolls showed a 

significant rebound, gaining nearly 350,000 jobs. 

Business Equipment Investment Should Continue to be a Tailwind

Nonresidential fixed investment also received an upgrade in the second estimate of GDP last quarter across the 

structures, equipment, and intellectual property components. Business conditions improved in the second quarter as 

corporate profits rebounded, rising 1.3 percent (not annualized) and partially recovering the 2.1 percent drop in the prior 

quarter. While the quarterly increase was on the weak side, the year-over-year gain of 7.0 percent augurs well for 

business investment. 

Nonresidential investment in both structures and equipment was a 

strong driver of growth in the first half of this year. The rebound in 

energy extraction activity spurred surges in investment in mining and 

oilfield machinery and in petroleum and natural gas structures. The 

strength in energy extraction correlates with the steep rise in the rig 

count from the depressed levels reached after energy-related 

investment declined sharply following the oil price collapse in late 

2014. 

 

However, the rig count fell in August, marking the first monthly drop 

since May 2016. In addition, Hurricane Harvey will also likely cause 

disruptions in energy production in the near term.

Core capital goods (nondefense capital goods excluding aircraft)

shipments—a key source of data used to estimate equipment 

spending—posted the strongest monthly increase in July since 

February. In addition, core capital goods orders, a forward-looking 

indicator, showed the biggest rise since January, continuing an 

upward trend that started a year ago after a protracted downturn 

triggered by the plunge in oil prices and the sharp rise in the dollar in 

2014. Notably, core capital goods orders have trended up steadily 

following the presidential election, which has triggered a series of 

business deregulations, including the reversal of some existing federal 

regulation, and a slowdown in the issuance of new regulation. We 

expect that business equipment investment will increase solidly this 

quarter despite softening energy-related activity. 

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US Oil and Gas Rig Count

Oil and Gas Rig Count Recovers From 

Precipitous Fall

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

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

Average Hourly Earnings 

(SA, Year-over-Year % Change)

Wage Growth Remains Stuck in a Rut

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SA, Thousands, Month-over-Month

Job Creation Slows, 

But the Trend Remains Solid

Change in Total Nonfarm Employment

3-Month Moving Average

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Corporate Profits with IVA and CCAdj 

(SAAR, $, Year-over-Year % Change)

Corporate Profits Post Third Consecutive 

Year-over-Year Increase
© 2017 Fannie Mae. Trademarks of Fannie Mae. 9.11.2017 3 of 4

After dragging sizably on growth in the first quarter before stabilizing 

in the second quarter, we expect inventory investment to help drive 

growth in the second half of this year. For the trade sector, the real 

trade deficit widened only slightly in July, as the drop in real goods 

exports outweighed the decline in real goods imports. In the near 

term, Hurricane Harvey might cause a large temporary drag on 

energy exports. We expect that net exports will subtract from growth 

in the second half after supporting growth in the first half. Finally, 

residential investment should be neutral to growth for the last half of 

2017. 

 

Nothing Should Deter the Fed from Tapering the 

Balance Sheet

The minutes from the last Federal Open Market Committee meeting in July showed that the Committee expressed 

concerns about recent declines in inflation trends and saw downside risk to its near-term outlook. The Fed’s favored 

measure of inflation tied to consumer spending—the Personal Consumption Expenditures (PCE) Deflator—ticked up 0.1 

percent in July while the annual increase remained at 1.4 percent, well below the Fed’s two-percent target. Since 

February, PCE inflation has declined by 0.8 percentage points. Excluding food and energy items, the annual increase in 

core PCE fell one-tenth to 1.4 percent. Rising gasoline prices from Harvey should temporarily increase headline inflation. 

However, the next increase in the fed funds rate, which we currently believe will occur in December, could be delayed

until next year if core inflation fails to firm. The disruptions from the hurricanes will also muddy the employment picture. 

Despite rising uncertainty surrounding the timing of the next rate hike, we continue to expect the Fed to announce a 

tapering of its balance sheet at its next meeting on September 19-20.

Housing Roundup

Real residential investment fell 6.5 percent annualized in the second 

quarter, the biggest drop since the third quarter of 2010. We expect it

to drop again this quarter, albeit more moderately. Housing indicators 

started off the third quarter on a soft note. Single-family starts fell 

slightly in July while multifamily starts dropped sharply. Year-to-date, 

single-family starts were up about 9 percent; however, the current 

level remains near those witnessed in recessions prior to the last 

downturn. Through July, multifamily starts were approximately 10

percent below the level during the same period last year.

Existing home sales fell in July to the slowest pace since August 

2016, while new home sales plummeted to the weakest pace since 

December 2016. The number of existing homes for sale remains 

significantly below last year’s level, extending a streak of annual declines 

to more than two years. Homes are selling fast, with existing homes 

staying on the market for 30 days or less for the fourth consecutive 

month. Data from CoreLogic show that the annual decline in inventory 

is most severe for lower-priced homes, presenting a challenge for 

potential first-time homebuyers.

Through the first seven months of this year, total home sales were 

about 3 percent higher than sales during the same period in 2016. The 

near-term outlook for home sales is bearish, as pending home sales fell 

in July and posted annual drops in three of the past four months. In 

addition, another leading indicator of home sales, purchase mortgage 

applications, fell 4.0 percent in August after declining 4.3 percent in 

July.

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SAAR, Millions of Units

SAAR, Millions of Units

New and Existing Home Sales Drop to the 

Lowest Levels of 2017

Existing Home Sales

New Home Sales (Right Axis)

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Pending Home Sales Index (SA)

Pending Home Sales Fall Year-over-Year For 

the Third Time in the Past Four Months

Year-over-Year % Change

Level (Right Axis)

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New Orders for Nondefense Capital 

Goods ex Aircraft (SA, Bil.$)

Core Capital Goods Orders Have Gradually 

Recovered

Presidential Election
© 2017 Fannie Mae. Trademarks of Fannie Mae. 9.11.2017 4 of 4

Extremely lean inventory continues to fuel home price appreciation

and pressure affordability. Main measures of home prices, including 

the Case-Shiller, the Federal Housing Finance Agency (FHFA) 

Purchase-only, and the CoreLogic indices, showed annual gains of 

between 5.8 percent and 6.5 percent in June. 

The August Fannie Mae National Housing Survey® showed that 

high home prices led to increasingly divergent home buying and 

selling sentiments. In the early stages of the economic expansion, 

home selling sentiment trailed home buying sentiment by a 

significant margin. However, the situation is now reversed. The net 

share of consumers saying it is a good time to sell is double the net 

share indicating it is a good time to buy, with record high 

percentages of consumers citing home prices as the primary reason 

for both perceptions. We believe that lean inventory and strong 

home price appreciation will continue to weigh on home sales 

through the rest of the year.

Mortgage rates have averaged below 4.0 percent over the past three months, and we expect them to move sideways for 

the balance of the year, averaging 3.9 percent in the fourth quarter. Despite continued low mortgage rates, we expect total 

home sales to be flat during the second half of the year compared with the first half. For all of 2017, we expect total home 

sale to rise about 3 percent, the same as in the prior forecast. Our projection for total single-family mortgage originations 

is little changed from the prior forecast at $1.68 trillion in 2017, a drop of about 18 percent from 2016. The refinance share

is expected to decline to around 36 percent in 2017 from 48 percent in 2016.

Economic & Strategic Research (ESR) Group

September 11, 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, Autodata, Bureau of Labor Statistics, Baker Hughes, Census Bureau, National Association of 

REALTORS®, Fannie Mae.

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

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Fannie Mae HPSI (NSA, Mar-11=60) 

% of Respondents Who Say It Is a...

Selling and Buying Sentiments Increasingly 

Diverge

Good Time to Buy

Good Time to Sell