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posted on 11 December 2016

December 2016 Livingston Survey: Forecasters Strengthen Their Predictions for Output Growth and Predict Declining Unemployment for 2017

from the Philadelphia Fed

The 28 participants in the December Livingston Survey predict robust output growth over the second half of 2016. The forecasters, who are surveyed by the Federal Reserve Bank of Philadelphia twice a year, project that real GDP will grow at an annual rate of 2.7 percent in the second half of 2016. They see growth of 2.2 percent (annual rate) in the first half of 2017 and 2.4 percent (annual rate) in the second half of 2017. These projections mark upward revisions over those of the June survey.

The forecasters revised their predictions upward for the unemployment rate in December 2016 (but note that the forecasts were submitted before the December 2, 2016, employment report). The unemployment rate is now predicted to be 4.9 percent in December 2016 and 4.7 percent in June 2017. The unemployment rate is expected to be 4.6 percent in December 2017.

On an annual-average over annual-average basis, CPI inflation is expected to be 1.3 percent in 2016 and 2.4 percent in 2017. The 2016 projection remains unchanged from that of the June survey, while the 2017 projection is up 0.3 percentage point. CPI inflation is expected to rise to 2.5 percent in 2018. PPI inflation is expected to be -1.0 percent in 2016 and 2.7 percent in 2017. Both the 2016 and 2017 projections for PPI inflation are up 0.4 percentage point from the estimates of six months ago. PPI inflation is expected to be 2.1 percent in 2018.

The panelists have reduced their forecasts for the interest rates on three-month Treasury bills while increasing their forecasts for 10-year Treasury bonds compared with their projections of six months ago. At the end of December 2016, the interest rate on three-month Treasury bills is predicted to be 0.55 percent, revised down from 0.75 percent. The forecasters predict that the three-month Treasury bill rate will be 0.83 percent at the end of June 2017 and 1.12 percent in December 2017. The rate is expected to rise to 2.00 percent in 2018. The interest rate on 10-year Treasury bonds is predicted to be 2.30 percent at the end of December 2016, up from the previous estimate of 2.25 percent. Additionally, forecasters predict the 10-year rate will be 2.50 percent at the end of June 2017 and 2.75 percent in December 2017. The forecasters expect the rate to be 3.35 percent in 2018.

The forecasters now predict that inflation (measured by the CPI) will be 2.30 percent annually over the next 10 years, which is slightly higher than the forecast of 2.25 percent in the survey of six months ago. The forecasters peg real GDP growth at 2.20 percent on an annual basis over the next 10 years, unchanged from the last survey.

The forecasters predict the S&P 500 index will finish 2016 at a level of 2200.0, an upward revision from the estimate of 2140.0 in the June 2016 survey. They also see stock prices increasing over the next two years, with the index rising to 2254.8 by the end of June 2017, to 2314.5 by the end of 2017, and then to 2400.0 by the end of 2018.


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