Fannie Mae made a few modest changes to its economic
projections this month as consumer spending in January was above expectations
and interest rates rose. The company’s Economic and Strategic Research (ESR)
Group expects the growth in GDP in 2021 to be 6.6 percent rather than its prior
6.7 percent forecast and upgrades 2022 to 3.0 percent from 2.8 percent.  Compared to last month’s forecast, they also expect
a modestly stronger consumer recovery
, but a more drawn-out expansion of
government expenditures and a modestly slower pace of private investment
spending. A downside risk to the forecast is the possibility of a more resistant virus
variant emerging, leaving the future path of the virus a near-term risk. The greatest
uncertainty, however, is how fast social distancing restricted activities recover.

If businesses and consumers are reluctant to resume pre-pandemic activities,
the expected strong 2nd and 3rd quarter growth may not
materialize. On the upside, household savings are extremely high; checking
accounts alone held $3.2 trillion in Q4 2020, $2 trillion more than the pre-COVID
baseline. If consumers spend down these balances as well as their stimulus
check, consumer spending might be greater than Fannie Mae’s robust projections.


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