Growth expectations have been downgraded for rest of this year and for most of 2011 due to soft consumer spending and ongoing labor market duress, according to the September 2010 Economic Outlook released by Fannie Mae’s Economics & Mortgage Market Analysis Group.

For the remainder of this year, the analysis group expects a 2.2 percent growth and believes it will strengthen to 2.5 percent in 2011, according to a statement.

Housing demand is also struggling, even though home prices have declined and there have been record drops in interest rates, according to a statement. The analysis group belies this reflects household concerns about personal finances and weak employment prospects.

"We continue to see a supply and demand imbalance in the housing sector with very low levels of sales activity," said Fannie Mae Chief Economist Doug Duncan. "This is further delaying housing’s return to normalcy. At this point in the post-recession cycle, housing is usually contributing to economic growth. In our current environment, slow housing growth is detracting from overall economic growth. Very low mortgage rates are spurring refinance activity, but we don’t expect low rates to boost purchase activity as long as the labor market remains weak."