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Oil Prices Cloud Economic Outlook According to Fannie Mae's Economic & Mortgage Market Analysis Group
The economy continues to show increasing signs of self-sustaining momentum, however an unexpected jump in oil prices and the potential for further tightening of fiscal policy suggest less economic momentum than previously believed, according to the March 2011 Economic Outlook released by Fannie Mae's Economics & Mortgage Market Analysis Group. Projected economic growth for the year was lowered to 3.5 percent – down slightly from 3.7 percent in February 2011, but up from 2.7 percent annual growth in 2010.
The recent jump in oil prices and unpredictability of the magnitude and duration of the oil price rise has injected additional uncertainty about the prospects for consumer spending and economic growth for 2011 and 2012. "The increase in oil prices has an impact on the economy, especially on the consumer side," said Fannie Mae Chief Economist Doug Duncan. "The U.S. consumes roughly seven billion barrels of oil each year, so every dollar increase in the cost of energy translates into a $7 billion annual tax on consumers, reducing their disposable income available for spending on other goods and services."
Consumer uncertainty also continues to stifle demand for housing, keeping the housing market on a bumpy road to recovery. "Our National Housing Survey results during the last year have been very clear regarding consumer uncertainty about the economic and housing environment," said Duncan. "This uncertainty, coupled with the rise in oil prices, is precipitating reluctance among people to take on large financial obligations such as borrowing money to purchase a home."