Economic growth slowed in the first quarter as the boost seen in earlier quarters from companies restocking shelves fades, according to Fannie Mae's monthly outlook report.

Fannie Mae's economists expect growth to slow to slightly more than 2% in the first quarter, in line with previous forecasts.

Consumer spending in the U.S. is continuing to strengthen, although a worrying trend has begun to emerge, according to Fannie Mae's Chief Economist Doug Duncan.

"The pickup in consumer spending has outpaced income growth, which means that consumers are increasing their spending by borrowing from their savings," Duncan said, adding that an increase in real disposable income is needed for stronger economic activity.

Looking to housing, Fannie Mae called the recovery in the battered housing market "uneven," saying data during the first quarter have shown some loss of momentum.

Employment data also has also been mixed, the firm said, although it warned against reading too much into a disappointing government report that showed the creation of just 120,000 jobs last month, far below market expectations.

Fannie Mae expects the unemployment rate to trend down to an estimated 7.5% by the end of next year, with a monthly average gain of approximately 190,000 jobs this year and a slightly stronger pace beginning next year.

Subscribe Now

Authoritative analysis and perspective for every segment of the payments industry

14-Day Free Trial

Authoritative analysis and perspective for every segment of the industry