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posted on 17 June 2017

June 2017 Livingston Survey: Forecasters Predict Slightly Higher Growth and Lower Unemployment

from the Philadelphia Fed

The participants in the June Livingston Survey predict higher output growth for the second half of 2017 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 2.1 percent during the first half of 2017, only slightly weaker than the prediction of 2.2 percent in the December 2016 survey. Growth in the second half of 2017 is expected to rise to 2.5 percent, only a bit higher than the prediction of 2.4 percent in the previous survey. Real GDP is predicted to grow steadily at a rate of 2.5 percent in the first half of 2018.

The forecasters see the unemployment rate falling in the second half of this year, and their projections have been revised downward from the December 2016 survey. The forecasters predict that the unemployment rate will be 4.4 percent in June 2017 and 4.3 percent in December 2017. The unemployment rate is expected to continue to fall to 4.2 percent in June 2018. On an annual-average basis, the unemployment rate is expected to be 4.5 percent for 2017 and 4.2 percent in 2018.

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.

Forecasters Predict Declining Inflation from 2017 to 2018

On an annual-average over annual-average basis, CPI inflation is expected to be 2.4 percent in 2017 and 2.3 percent in 2018. The projection for CPI inflation in 2017 remains unchanged from that of the December survey. PPI inflation for finished goods is expected to be 3.3 percent this year, a significant upward revision from 2.7 percent in the previous survey. The forecasters peg PPI inflation at 2.0 percent next year.

Short- and Long-Term Interest Rates Are Predicted to Rise over Time

The panelists strengthened their forecasts for the interest rates on three-month Treasury bills over those of six months ago. At the end of June 2017, the interest rate on three-month Treasury bills is predicted to be 1.00 percent. The forecasters predict that the three-month rate will reach 1.30 percent at the end of December 2017 and continue to rise to 1.60 percent at the end of June 2018. The three-month Treasury bill interest rate is expected to reach 2.02 percent at the end of December 2018. All forecasts for the short-term interest rate were revised upward from the December 2016 survey.

Unlike the strong upward revisions of the three-month Treasury bills, the revisions to the 10-year rate are mildly downward. The interest rate on 10-year Treasury bonds is predicted to reach 2.40 percent at the end of June 2017, a downward revision from 2.50 percent in the survey of six months ago. The forecasters continue to predict that the 10-year rate will rise to 2.75 percent at the end of December 2017 and continue to rise to 3.00 percent at the end of June 2018. The 10-year Treasury bond interest rate is expected to reach 3.30 percent at the end of December 2018.

No Change in Long-Term Output Growth Forecasts

While There's a Slight Increase in Long-Term Inflation Forecasts The forecasters continue to predict that real GDP will grow 2.20 percent annually over the next 10 years, as they did in the survey of six months ago. The forecasters now predict that inflation (measured by the CPI) will be 2.32 percent annually over the next 10 years, only a bit higher than the forecast of 2.30 percent in the December 2016 survey.

Forecasters Continue to See Rising Stock Prices

This Year and Next The panelists predict that the S&P 500 index will finish the first half of 2017 at a level of 2410.0. Stock prices are expected to rise to 2470.0 at the end of 2017 and continue to rise to 2550.0 at the end of June 2018. The index is forecasted to reach to 2630.0 by the end of 2018. All forecasts for stock prices were revised upward from the December 2016 survey.

Source: https://www.philadelphiafed.org/-/media/research-and-data/real-time-center/livingston-survey/2017/livjun17.pdf


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