May 4, 2021
If you are reading the forecasts being released for this year, the optimism for a strong rebound has hit unprecedented highs. There has been plenty of data to support such optimism. This data has included a gain of nearly one million jobs in March. Add plenty of stimulus dollars to the equation, and you can see why the analysts are raising their forecasts.
For example, Fannie Mae sees second quarter growth at an annualized rate of 9.1% — extremely hot — and a growth rate of 6.8% for the fourth quarter of this year. These are very optimistic numbers. They acknowledge there are risks on the downside, such as a variant-fueled surge in COVID cases and the risk of inflation rising and interest rates increasing in response to any surge in inflation. Of course, there are always caveats to every prediction.
Are we being too optimistic? In April, we actually saw interest rates fall and one of the explanations analysts provided indicated that the data was not as strong as expected. In other words, the greater our expectations, the more likely we could be disappointed. Could we really be disappointed by something akin to a 7.0% growth rate in the second quarter? The first measure of economic growth for the first quarter was released last Thursday and the strong 6.4% rate was a bit higher than forecasts. The markets reacted positive initially, with interest rates and the stock market moving higher, with a quick reversal the very next day.
Source: Origination Pro
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