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posted on 16 December 2017

December 2017 Livingston Survey: Forecasters Strengthen Their Predictions for Output Growth

from the Philadelphia Fed

The 24 participants in the December Livingston Survey predict robust output growth over the second half of 2017. 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 2.9 percent in the second half of 2017.

They see growth of 2.5 percent (annual rate) in the first half of 2018 and 2.4 percent (annual rate) in the second half of 2018. Compared with the June survey, these projections mark an upward revision for 2017, along with unchanged predictions for 2018.

The forecasters revised their predictions downward for the unemployment rate in December 2017 (note that the forecasts were submitted before the December 8, 2017, employment report). The unemployment rate is now predicted to be 4.1 percent in December 2017 and 4.0 percent in June 2018. The unemployment rate is expected to be 3.9 percent in December 2018.

Forecasters See Slightly Lower Inflation in 2017 and 2018

On an annual-average over annual-average basis, CPI inflation is expected to be 2.1 percent in 2017 and 2.2 percent in 2018. The 2017 projection has been revised downward by 0.3 percentage point from that of the June survey, while the 2018 projection is down 0.1 percentage point. CPI inflation is expected to remain steady at 2.2 percent in 2019. PPI inflation is expected to be 3.0 percent in 2017 and 2.1 percent in 2018. The 2017 projection is 0.3 percentage point lower than the estimates from six months ago, while the 2018 projection for PPI inflation is up 0.1 percentage point from six months ago. PPI inflation is expected to be 2.0 percent in 2019.

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.

Outlook for Short-Term Rates Is Roughly Unchanged

At the end of December 2017, the interest rate on three-month Treasury bills is predicted to be 1.30 percent, unchanged from the June 2017 survey estimates. The forecasters predict that the three-month Treasury bill rate will be 1.60 percent at the end of June 2018 and 1.88 percent in December 2018. The rate is expected to rise to 2.41 percent in 2019. The interest rate on 10-year Treasury bonds is predicted to be 2.45 percent at the end of December 2017, down from the previous estimate of 2.75 percent. Additionally, forecasters predict the 10-year rate will be 2.75 percent at the end of June 2018 and 3.00 percent in December 2018. The forecasters expect the rate to be 3.35 percent in 2019.

Nearly Unchanged Outlook for Long-Term Inflation and Output Growth

The forecasters now predict that inflation (measured by the CPI) will average 2.34 percent annually over the next 10 years, which is roughly unchanged from the forecast of 2.32 percent from the June 2017 survey. The forecasters peg annual average real GDP growth at 2.18 percent over the next 10 years, also roughly unchanged from June's survey of 2.20 percent.

Forecasters Strengthen Their Predictions for Stock Prices

The forecasters predict the S&P 500 index will finish 2017 at a level of 2644.8, an upward revision from the estimate of 2470.0 in the June 2017 survey. They also see stock prices increasing over the next two years, with the index rising to 2739.8 by the end of June 2018, to 2805.0 by the end of 2018, and then to 2980.0 by the end of 2019.

Source: https://www.philadelphiafed.org/-/media/research-and-data/real-time-center/livingston-survey/2017/livdec17.pdf


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