The economy is struggling to regain the momentum lost since the beginning of 2011 as higher gasoline prices and supply-chain disruptions due to the Japan tragedy during the first half of the year combined to restrain growth, according to the July 2011 Economic Outlook released today by Fannie Mae's (OTC Bulletin Board: FNMA) Economics & Mortgage Market Analysis Group. Economic growth in the second quarter is estimated to have moved at the same anemic 1.9 percent pace seen during the first quarter. However, motor vehicle production is on track for a rebound and we've seen a decline in oil prices, which should encourage growth of about 3 percent for the current quarter before slowing modestly in the final quarter. Full-year growth is projected to slow to 2.4 percent, down from 2.8 percent in 2010.

The economy's inability to gain traction stems from continued uncertainty. The ongoing European and U.S. sovereign debt issues may have a significant downside impact on the banking system and broader financial markets, both here in the U.S. and abroad. Housing, a central piece of the economic story, continues to add nothing to economic growth, with home sales expected to rise only slightly over last year's numbers. And, two consecutive very poor employment reports have compounded issues for an already stressed labor market.

"Clearly, the renewed slowdown in hiring underscores the uncertainty surrounding the economic outlook," said Fannie Mae Chief Economist Doug Duncan. "The lack of sustained, robust job growth continues to push out into the future the time for the housing market to heal, which is crucial to a meaningful economic expansion."