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posted on 13 February 2015

First Quarter 2015 Survey of Professional Forecasters See Unchanged Outlook for Growth, but Brighter Outlook for Labor Markets

from the Philadelphia Fed

The outlook for growth in the U.S. economy over the next three years has changed little from the survey of three months ago, according to 39 forecasters surveyed by the Federal Reserve Bank of Philadelphia. The forecasters predict real GDP will grow at an annual rate of 2.7 percent this quarter and 3.0 percent next quarter. On an annual-average over annual-average basis, real GDP will grow 3.2 percent in 2015, up 0.2 percentage point from the previous estimate. The forecasters predict real GDP will grow 2.9 percent in 2016, 2.7 percent in 2017, and 2.7 percent in 2018.

A brighter outlook for the labor market accompanies the nearly stable outlook for growth. The forecasters predict that the unemployment rate will be an annual average of 5.4 percent in 2015, before falling to 5.1 percent in 2016, 5.0 percent in 2017, and 4.9 percent in 2018. The projections for 2015, 2016, and 2017 are below those of the last survey.

The panelists also predict an improved outlook on the employment front. They have revised upward their estimates for job gains in the next four quarters. The forecasters see nonfarm payroll employment growing at a rate of 269,300 jobs per month this quarter, 233,800 jobs per month next quarter, 222,000 jobs per month in the third quarter of 2015, and 229,400 jobs per month in the fourth quarter of 2015. The forecasters' projections for the annual-average level of nonfarm payroll employment suggest job gains at a monthly rate of 252,500 in 2015 and 213,600 in 2016, as the table below shows. (These annual-average estimates are computed as the year-to-year change in the annual-average level of nonfarm payroll employment, converted to a monthly rate.)

Median Forecasts for Selected Variables in the Current and Previous Surveys

Real GDP (%)

Unemployment Rate (%)

Payrolls (000s/month)

Previous

New

Previous

New

Previous

New

Quarterly Data:
2015:Q1

2.8

2.7

5.8

5.6

211.2

269.3

2015:Q2

3.1

3.0

5.7

5.5

195.4

233.8

2015:Q3

2.8

2.8

5.6

5.4

208.0

222.0

2015:Q4

3.0

2.8

5.5

5.2

201.3

229.4

2016:Q1

N.A.

2.9

N.A.

5.2

N.A.

213.8

Annual Data (projections are based on annual-average levels):
2015

3.0

3.2

5.6

5.4

212.3

252.5

2016

2.9

2.9

5.4

5.1

N.A.

213.6

2017

2.7

2.7

5.2

5.0

N.A.

N.A.

2018

N.A.

2.7

N.A.

4.9

N.A.

N.A.

The charts below provide some insight into the degree of uncertainty the forecasters have about their projections for the rate of growth in the annual-average level of real GDP. Each chart (except the one for 2018) presents the forecasters' previous and current estimates of the probability that growth will fall into each of 11 ranges. The probability estimates for growth in 2015, 2016, and 2017 are about the same now as they were in the previous survey.

The forecasters' density projections for unemployment, shown below, shed light on uncertainty about the labor market over the next four years. Each chart for unemployment presents the forecasters' current estimates of the probability that unemployment will fall into each of 10 ranges. The charts show the forecasters are raising their density estimates over the next three years at the lower levels of unemployment outcomes, suggesting they are more confident about lower unemployment than they were in the last survey.

Forecasters Predict Lower Inflation in 2015

The forecasters expect current-quarter headline CPI inflation to average -1.4 percent, lower than the last survey's estimate of 1.8 percent. The forecasters predict current-quarter headline PCE inflation of -0.6 percent, lower than the prediction of 1.7 percent from the survey of three months ago.

The forecasters also see lower headline and core measures of CPI and PCE inflation in 2015. Measured on a fourth-quarter over fourth-quarter basis, headline CPI inflation is expected to average 1.1 percent in 2015, down from 1.9 percent in the last survey. Forecasters expect fourth-quarter over fourth-quarter headline PCE inflation to also average 1.1 percent in 2015, down from 1.8 percent in the last survey.

Over the next 10 years, 2015 to 2024, the forecasters expect headline CPI inflation to average 2.1 percent at an annual rate. The corresponding estimate for 10-year annual-average PCE inflation is 2.0 percent.

Median Short-Run and Long-Run Projections for Inflation (Annualized Percentage Points)

Headline CPI

Core CPI

Headline PCE

Core PCE

Previous

Current

Previous

Current

Previous

Current

Previous

Current

Quarterly
2015:Q1

1.8

-1.4

1.9

1.3

1.7

-0.6

1.7

1.2

2015:Q2

1.9

1.6

1.9

1.7

1.8

1.4

1.7

1.4

2015:Q3

2.0

1.9

1.9

1.8

1.8

1.9

1.8

1.5

2015:Q4

2.0

2.0

2.0

1.8

1.9

1.8

1.8

1.7

2016:Q1

N.A.

2.1

N.A.

1.9

N.A.

1.8

N.A.

1.6

Q4/Q4 Annual Averages
2015

1.9

1.1

2.0

1.7

1.8

1.1

1.8

1.4

2016

2.1

2.1

2.0

1.9

1.9

1.9

1.8

1.7

2017

N.A.

2.3

N.A.

2.1

N.A.

2.1

N.A.

1.9

Long-Term Annual Averages
2014-2018

2.09

N.A.

N.A.

N.A.

1.90

N.A.

N.A.

N.A.

2015-2019

N.A.

2.00

N.A.

N.A.

N.A.

1.80

N.A.

N.A.

2014-2023

2.20

N.A.

N.A.

N.A.

2.00

N.A.

N.A.

N.A.

2015-2024

N.A.

2.10

N.A.

N.A.

N.A.

2.00

N.A.

N.A.

The charts below show the median projections (the red line) and the associated interquartile ranges (the gray area around the red line) for 10-year annual-average CPI and PCE inflation. The top panel shows a slightly lower level of the long-term projection for CPI inflation, at 2.1 percent. The bottom panel highlights the unchanged 10-year forecast for PCE inflation, at 2.0 percent.

The figures below show the probabilities that the forecasters are assigning to the possibility that fourth-quarter over fourth-quarter core PCE inflation in 2015 and 2016 will fall into each of 10 ranges. For 2015, the forecasters assign a higher chance than previously predicted that core PCE inflation will be below 1.5 percent (and a lower probability that inflation will be above 1.5 percent).

Lower Risk of a Negative Quarter

For the current quarter, the forecasters predict a 7.9 percent chance of negative growth. As the table below shows, the forecasters have also reduced their risk estimates for a downturn in the following quarters, compared with their previous estimates.

Risk of a Negative Quarter (%)
Survey Means
Quarterly Data:

Previous

New

2015: Q1

10.3

7.9

2015: Q2

11.4

9.3

2015: Q3

12.6

11.1

2015: Q4

13.5

11.9

2016: Q1

N.A.

13.2

Forecasters State Their Views on House Prices

In this survey, a special question asked panelists to provide their forecasts for fourth-quarter over fourth-quarter growth in house prices, as measured by a number of alternative indices. The panelists were allowed to choose their measure from a list of indices or to write in their own index. For each index of their choosing, the panelists provided forecasts for growth in 2015 and 2016.

Twenty-two panelists answered the special question. Some panelists provided projections for more than one index. The table below provides a summary of the forecasters' responses. The number of responses (N) is low for each index. The median estimates for the seven house-price indices listed in the table below range from 3.7 percent to 5.9 percent in 2015 and from 3.0 percent to 5.0 percent in 2016.

Projections for Growth in Various Indices of House Prices
Q4/Q4, Percentage Points

2015
(Q4/Q4 Percent Change)

2016
(Q4/Q4 Percent Change)

Index

N

Mean

Median

N

Mean

Median

S&P/Case-Shiller: U.S. National

7

4.4

4.5

7

5.0

4.0

S&P/Case-Shiller: Composite 10

2

4.0

4.0

2

3.5

3.5

S&P/Case-Shiller: Composite 20

5

3.7

4.0

5

2.9

3.5

FHFA: U.S. Total

5

4.9

5.6

5

4.8

5.0

FHFA: Purchase Only

8

3.5

3.7

8

3.0

3.0

CoreLogic: National HPI, incl. Distressed Sales (Single Family Combined)

4

5.1

5.3

4

4.4

4.5

NAR Median: Total Existing

2

5.9

5.9

2

3.7

3.7

Forecasters See Slightly Lower Long-Run Growth in Output and Productivity and in Returns to Financial Assets

In the first-quarter surveys, the forecasters provide their long-run projections for an expanded set of variables, including growth in output and productivity, as well as returns on financial assets.

As the table below shows, the forecasters have reduced their estimates for the annual-average rate of growth in real GDP over the next 10 years. Currently, the forecasters expect real GDP to grow at an annual-average rate of 2.50 percent over the next 10 years, down from 2.60 percent in the first-quarter survey of 2014.

Similarly, productivity growth is now expected to average 1.70 percent, down from 1.80 percent. Downward revisions to the return on two of the financial assets accompany the current outlook. The forecasters see the S&P 500 returning an annual-average 5.45 percent per year over the next 10 years, down from 6.00 percent. The forecasters expect the rate on 10-year Treasuries to average 3.98 percent over the next 10 years, down from 4.35 percent in last year's first-quarter survey. Three-month Treasury bills will return 2.67 percent, up from 2.50 percent.

Median Long-Term (10-Year) Forecasts (%)

First Quarter 2014

Current Survey
Real GDP Growth

2.60

2.50

Productivity Growth

1.80

1.70

Stock Returns (S&P 500)

6.00

5.45

Rate on 10-Year Treasury Bonds

4.35

3.98

Bill Returns (3-Month)

2.50

2.67

The Federal Reserve Bank of Philadelphia thanks the following forecasters for their participation in recent surveys:

Lewis Alexander, Nomura Securities; Scott Anderson, Bank of the West (BNP Paribas Group); Robert J. Barbera, Johns Hopkins University Center for Financial Economics;Peter Bernstein, RCF Economic and Financial Consulting, Inc.; Christine Chmura, Ph.D.and Xiaobing Shuai, Ph.D., Chmura Economics & Analytics; Gary Ciminero, CFA, GLC Financial Economics; David Crowe, National Association of Home Builders; Nathaniel Curtis, Navigant Consulting; Gregory Daco, Oxford Economics USA, Inc.; Rajeev Dhawan, Georgia State University; Michael R. Englund, Action Economics, LLC; Michael Gapen, Barclays Capital; James Glassman, JPMorgan Chase & Co.; Matthew Hall andDaniil Manaenkov, RSQE, University of Michigan; Jan Hatzius, Goldman Sachs; Keith Hembre, Nuveen Asset Management; Peter Hooper, Deutsche Bank Securities, Inc.; IHS Global Insight; Fred Joutz, Benchmark Forecasts and Research Program on Forecasting, George Washington University; Sam Kahan, Kahan Consulting Ltd. (ACT Research LLC); N. Karp, BBVA Compass; Jack Kleinhenz, Kleinhenz & Associates, Inc.;Thomas Lam, OSK-DMG/RHB; L. Douglas Lee, Economics from Washington; John Lonski, Moody's Capital Markets Group; Macroeconomic Advisers, LLC; R. Anthony Metz, Pareto Optimal Economics; Michael Moran, Daiwa Capital Markets America; Joel L. Naroff, Naroff Economic Advisors; Luca Noto, Anima Sgr; Brendon Ogmundson, BC Real Estate Association; Tom Porcelli, RBC Capital Markets; Arun Raha, Eaton Corporation; Martin A. Regalia, U.S. Chamber of Commerce; Vincent Reinhart, Morgan Stanley; Philip Rothman, East Carolina University; Chris Rupkey, Bank of Tokyo-Mitsubishi UFJ; John Silvia, Wells Fargo; Allen Sinai, Decision Economics, Inc.; Sean M. Snaith, Ph.D., University of Central Florida; Neal Soss, Credit Suisse; Stephen Stanley, Amherst Pierpont Securities; Charles Steindel, Ramapo College of New Jersey; Susan M. Sterne, Economic Analysis Associates, Inc.; Thomas Kevin Swift, American Chemistry Council; Richard Yamarone, Bloomberg, LP; Mark Zandi, Moody's Analytics.

This is a partial list of participants. We also thank those who wish to remain anonymous.


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