05/20/2022 | Press release | Distributed by Public on 05/20/2022 09:40
Key Takeaways:
April retail sales were relatively strong even after accounting for inflation, but they were even more robust when considering the significant upward revisions to the March figures. The March revision suggests that Q1 GDP was likely stronger than the BEA's preliminary reading, so we expect an upward revision to their next estimate of Q1 GDP. Further, we are likely to upwardly revise our Q2 personal consumption expectations as the quarter will now have started off at a higher level than previously thought. It appears that consumers are willing for now to dig deeper into savings and utilize more credit to overcome rising prices. We still believe the general trend of higher real personal consumption combined with falling real disposable incomes is unsustainable in the medium-to-long term, but for now, fears of an imminent recession have largely been assuaged. This is supported by the strong industrial production numbers for April. One important highlight: Motor vehicle production exceeded its average 2019 output in April, which could help sustain consumption growth, as we believe there is still significant pent-up demand for autos after more than a year of serious supply chain issues severely limiting auto inventories.
Recent housing activity is less encouraging, though both existing home sales and housing starts in April remained above their 2019 levels. A general decline in housing activity is in line with our forecast, as higher mortgage rates begin to fully take effect in coming months. The decline in the homebuilder sentiment index is somewhat more concerning, however, as lower homebuilder sentiment could affect the number of future housing starts. Still, we believe housing starts will decline more gradually compared to existing home sales. Homebuilders continue to have a significant backlog of orders from new homes sold but not yet started, attributable to the ongoing material and labor shortages that have caused builders to postpone projects and even decline new orders.
Nathaniel Drake
Economic and Strategic Research Group
May 20, 2022
Opinions, analyses, estimates, forecasts, and other views of Fannie Mae's Economic and 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.