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posted on 08 June 2016

June 2016 Livingston Survey: Forecasters Predict Slightly Lower Growth and Slightly Higher Unemployment for Second Half of 2016

from the Philadelphia Fed

The participants in the June Livingston Survey predict lower output growth for the second half of 2016 than they did in the December survey. The forecasters, who are surveyed by the Federal Reserve Bank of Philadelphia twice a year, project that the economy's output (real GDP) will rise at an annual rate of 1.4 percent during the first half of 2016, weaker than the prediction of 2.5 percent in the December 2015 survey.

Growth in the second half of 2016 is expected to rise to 2.4 percent, only a bit lower than the prediction of 2.6 percent in the previous survey. Real GDP is predicted to grow at a rate of 2.1 percent in the first half of 2017.

The forecasters see the unemployment rate falling in the second half of this year, and the projections have been revised upward. The forecasters predict that the unemployment rate will be 4.9 percent in June 2016 and 4.7 percent in December 2016. The unemployment rate is expected to hold at 4.7 percent in June 2017. On an annual-average basis, the unemployment rate is expected to be 4.9 percent for 2016 and settle down to 4.7 percent in 2017.

On an annual-average over annual-average basis, CPI inflation is expected to be 1.3 percent in 2016 and 2.1 percent in 2017. PPI inflation for finished goods is expected to be -1.4 percent this year and 2.3 percent next year. As the table below shows, the inflation projections for 2016 are noticeably lower than they were in the December survey. However, the 2017 projections are only a little lower than they were before.

The panelists softened their forecasts for the interest rates on three-month Treasury bills and 10-year Treasury bonds from of six months ago. At the end of June 2016, the interest rate on three-month Treasury bills is predicted to be 0.35 percent, a downward revision from 0.68 in the survey six months ago. The forecasters predict that the three-month rate will be 0.75 percent at the end of December 2016 and continue to rise to 1.12 at the end of June 2017. The three-month Treasury bill interest rate is expected to reach 1.55 at the end of December 2017. Similarly, the interest rate on 10-year Treasury bonds is predicted to reach 1.90 at the end of June 2016, a downward revision from 2.55 in the survey six months ago. The forecasters also predict the 10-year rate will rise to 2.25 at the end of December 2016 and continue to rise to 2.45 at the end of June 2017. The 10-year Treasury bond interest rate is expected to reach 2.60 at the end of December 2017.

The forecasters continue to predict that inflation (measured by the CPI) will grow 2.25 percent annually over the next 10 years, as they did in the survey of six months ago. Real GDP is expected to grow on average 2.20 percent over the next 10 years, a weakened prediction of 2.25 in the survey six months ago.

The panelists predict the S&P 500 index will finish the first half of 2016 at a level of 2100.0, a downward revision from the estimate of 2120.0 in the December 2015 survey. Stock prices are expected to rise to 2140 at the end of 2016 and continue to rise to 2167.8 at the end of June 2017. The index is forecast to reach to 2200.6 by the end of 2017, also lower than the previous estimate of 2298.0.


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