Economic growth is poised to accelerate to 2.6 percent in the second half of the year, a rebound from the lackluster growth of 1.0 percent in the first half of 2016, according to Fannie Mae’s (FNMA/OTC) Economic & Strategic Research (ESR) Group’s September 2016 Economic and Housing Outlook. The ESR Group’s full-year 2016 forecast remains at 1.8 percent, consistent with their prior forecast. Consumer and government spending are expected to drive growth despite a slowdown in consumer activity so far in the third quarter. At the same time, inventory investment and net exports are likely to drag on growth and nonresidential and residential investment are expected to be neutral for the year.

“Consumers continue to carry the economy and the earnings slowdown in the August jobs report may be an aberration in the recently improving personal income growth trend,” said Fannie Mae Chief Economist Doug Duncan. “However, the declining trend in business productivity has negative implications for businesses’ profit outlook, as low productivity tends to boost labor costs, which could act as a headwind for hiring and investment. Corporate profits are down 4.9% from one year ago, extending their streak of annual declines. We expect nonresidential fixed investment to post a modest increase in the third quarter following three consecutive quarterly declines, while residential investment is likely to decline for the second consecutive quarter.”

“A bright spot for housing market activity is the strengthening of new home sales, which is significantly outperforming activity in recent years,” said Duncan. “The share of new home sales that are under construction or not started has climbed to nearly 70%, improving the outlook for single-family home building. Existing home sales underperformed 2015 for the first time in July, however year-to-date sales are still 2.6 percent higher than during the same period last year. Additionally, the share of for-rent multifamily building starts has trended up with recent trends in home building activity favoring the rental market.”