First Quarter 2014 Survey of Professional Forecasters
from the Federal Reserve Bank of Philadelphia
The outlook for growth in the U.S. economy over the next three years looks stronger than that of three months ago, according to 45 forecasters surveyed by the Federal Reserve Bank of Philadelphia. On an annual-average over annual-average basis, the forecasters predict faster real GDP growth in 2014, 2015, and 2016. The forecasters see real GDP growing 2.8 percent in 2014, up from their prediction of 2.6 percent in the last survey. The forecasters predict real GDP will grow 3.1 percent in 2015, higher than their prediction of 2.8 percent in the last survey. For 2016, the forecast for real GDP growth, at 3.1 percent, is 0.4 percentage point higher than the last survey.
A brighter outlook for the unemployment rate accompanies the more positive outlook for growth. The forecasters predict that the unemployment rate will be an annual average of 6.5 percent in 2014, before falling to 6.1 percent in 2015, 5.7 percent in 2016, and 5.5 percent in 2017. The projections for 2014, 2015, and 2016 are below those of the last survey.
On the jobs front, the forecasters see little change in job growth in 2014. The forecasters’ projections for the annual-average level of nonfarm payroll employment suggest job gains at a monthly rate of 187,700 in 2014 and 206,900 in 2015, 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.)
Real GDP (%) | Unemployment Rate (%) | Payrolls (000s/month) | ||||
|---|---|---|---|---|---|---|
Previous | New | Previous | New | Previous | New | |
| Quarterly Data:
| ||||||
| 2014:Q1 | 2.5 | 2.0 | 7.1 | 6.7 | 187.0 | 177.4 |
| 2014:Q2 | 2.9 | 3.0 | 7.0 | 6.6 | 193.5 | 193.5 |
| 2014:Q3 | 2.9 | 2.8 | 6.9 | 6.4 | 201.8 | 195.2 |
| 2014:Q4 | 2.9 | 2.7 | 6.8 | 6.3 | 202.1 | 215.0 |
| 2015:Q1 | N.A. | 3.2 | N.A. | 6.2 | N.A. | 201.0 |
| Annual Data (projections are based on annual-average levels): | ||||||
| 2014 | 2.6 | 2.8 | 7.0 | 6.5 | 189.9 | 187.7 |
| 2015 | 2.8 | 3.1 | 6.4 | 6.1 | N.A. | 206.9 |
| 2016 | 2.7 | 3.1 | 6.0 | 5.7 | N.A. | N.A. |
| 2017 | N.A. | 2.4 | N.A. | 5.5 | N.A. | N.A. |
A NOTE TO USERS OF THE DATA FOR DENSITY PROJECTIONS AND LONG-TERM FORECASTS FOR THE RATE ON 10-YEAR CONSTANT MATURITY TREASURY BONDS
We made two permanent changes to the survey’s design. First, we changed the definitions of the bins for the density questions on unemployment and GDP inflation. For unemployment, we shaved 2 percentage points from the endpoints of each bin. For GDP inflation, we defined the endpoints of each bin to correspond with those of core CPI inflation and core PCE inflation.
Second, we changed the phrasing of the question for the long-term (10-year annual-average) rate on 10-year constant maturity Treasury bonds. This question, which appears only in first-quarter surveys, has always been ambiguous. In previous first-quarter surveys, we asked for the return on 10-year Treasury bonds over the next 10 years. It was never clear whether we meant the return to buying a 10-year Treasury bond on the survey date and holding it until maturity or whether we meant the average return from buying a 10-year constant maturity Treasury bond each quarter (or month or day) over the next 10 years and holding the bonds until they mature. We have changed the question to emphasize the latter: We now ask for the yield on 10-year constant maturity Treasury bonds, and we make it clear to the panelists that we mean the average yield in the current year and the following nine years. This adjustment to the way we now ask the question might or might not change the panelists’ responses compared with the way they would have answered had we not changed the question.
We caution users of the data against comparing the long-term (10-year annual-average) forecasts for 10-year Treasury bonds in this survey with those of previous first-quarter surveys. Note that we have not changed the questions on short-term projections for 10-year Treasury rates that appear in each quarterly survey. Thus, the short-term projections in this survey are comparable with those of all previous surveys.
For additional information, please contact:
Tom Stark
Assistant Director and Manager
Real-Time Data Research Center
Research Department
Federal Reserve Bank of Philadelphia
Phone: 215-574-6436
E-mail: [email protected] 
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 chart for 2017) presents the forecasters’ previous and current estimates of the probability that growth will fall into each of 11 ranges. The forecasters have shifted the distributions of density to the right for 2014, 2015, and 2016, indicating their expectations for higher real GDP growth compared with their previous estimates.
- Mean Probabilities for Real GDP Growth in 2014 (chart)
- Mean Probabilities for Real GDP Growth in 2015 (chart)
- Mean Probabilities for Real GDP Growth in 2016 (chart)
- Mean Probabilities for Real GDP Growth in 2017 (chart)
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 forecasters estimate a near-40 percent chance that unemployment will average 6.0 to 6.4 percent in 2014 and 2015. They see a 35 percent chance of unemployment averaging 5.5 to 5.9 percent in 2016 and a substantial chance that unemployment will be below 5.5 percent in 2017.
- Mean Probabilities for Unemployment Rate in 2014 (chart)
- Mean Probabilities for Unemployment Rate in 2015 (chart)
- Mean Probabilities for Unemployment Rate in 2016 (chart)
- Mean Probabilities for Unemployment Rate in 2017 (chart)
Forecasters See Lower Inflation
The forecasters expect current-quarter headline CPI inflation to average 1.7 percent, lower than the last survey’s estimate of 1.8 percent. The forecasters predict current-quarter headline PCE inflation of 1.3 percent, lower than the prediction of 1.8 percent from the survey of three months ago.
The forecasters also see lower headline and core measures of CPI and PCE inflation during the next two years. Measured on a fourth-quarter over fourth-quarter basis, headline CPI inflation is expected to average 1.8 percent in 2014, down from 2.0 percent in the last survey, and 2.0 percent in 2015, down 0.2 percentage point from the previous estimate. Forecasters expect fourth-quarter over fourth-quarter headline PCE inflation to average 1.6 percent in 2014, down from 1.9 percent in the last survey, and 1.8 percent in 2015, down 0.1 percentage point from the previous estimate.
Over the next 10 years, 2014 to 2023, the forecasters expect headline CPI inflation to average 2.3 percent at an annual rate. The corresponding estimate for 10-year annual-average PCE inflation is 2.0 percent.
Headline CPI | Core CPI | Headline PCE | Core PCE | |||||
|---|---|---|---|---|---|---|---|---|
Previous | Current | Previous | Current | Previous | Current | Previous | Current | |
| Quarterly | ||||||||
| 2014:Q1 | 1.8 | 1.7 | 1.9 | 1.8 | 1.8 | 1.3 | 1.7 | 1.5 |
| 2014:Q2 | 2.0 | 1.7 | 1.9 | 1.8 | 1.9 | 1.5 | 1.8 | 1.5 |
| 2014:Q3 | 2.0 | 1.9 | 2.0 | 1.9 | 1.9 | 1.7 | 1.7 | 1.6 |
| 2014:Q4 | 2.1 | 2.0 | 2.0 | 1.9 | 1.9 | 1.7 | 1.8 | 1.7 |
| 2015:Q1 | N.A. | 2.0 | N.A. | 2.1 | N.A. | 1.8 | N.A. | 1.8 |
| Q4/Q4 Annual Averages | ||||||||
| 2014 | 2.0 | 1.8 | 2.0 | 1.9 | 1.9 | 1.6 | 1.7 | 1.6 |
| 2015 | 2.2 | 2.0 | 2.1 | 2.0 | 1.9 | 1.8 | 1.9 | 1.8 |
| 2016 | N.A. | 2.1 | N.A. | 2.1 | N.A. | 2.0 | N.A. | 1.9 |
| Long-Term Annual Averages | ||||||||
| 2013-2017 | 2.1 | N.A. | N.A. | N.A. | 1.8 | N.A. | N.A. | N.A. |
| 2014-2018 | N.A. | 2.1 | N.A. | N.A. | N.A. | 1.9 | N.A. | N.A. |
| 2013-2022 | 2.3 | N.A. | N.A. | N.A. | 2.0 | N.A. | N.A. | N.A. |
| 2014-2023 | N.A. | 2.3 | N.A. | N.A. | N.A. | 2.0 | 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 the unchanged long-term projection for CPI inflation, at 2.3 percent. The bottom panel highlights the unchanged 10-year forecast for PCE inflation, at 2.0 percent.
- Projections for the 10-Year Annual-Average Rate of CPI Inflation (chart)
- Projections for the 10-Year Annual-Average Rate of PCE Inflation (chart)
The figures below show the probabilities that the forecasters are assigning to the possibility that fourth-quarter over fourth-quarter core PCE inflation in 2014 and 2015 will fall into each of 10 ranges. For 2014, the forecasters assign a higher chance than previously noted that core PCE inflation will fall in the range of 1.0 to 1.9 percent (and a lower probability that inflation will fall in the range of 2.0 to 2.4 percent).
- Mean Probabilities for Core PCE Inflation in 2014 (chart)
- Mean Probabilities for Core PCE Inflation in 2015 (chart)
Risk of a Negative Quarter Remains Low
For the current quarter, the forecasters predict an 11.2 percent chance of negative growth. As the table below shows, the forecasters have kept their risk estimates for a downturn in the following quarters nearly unchanged, compared with their previous estimates.
| Quarterly Data: | Previous | New |
|---|---|---|
| 2014: Q1 | 11.1 | 11.2 |
| 2014: Q2 | 11.6 | 9.3 |
| 2014: Q3 | 11.7 | 10.6 |
| 2014: Q4 | 12.2 | 11.4 |
| 2015: Q1 | N.A. | 11.7 |
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 from a provided list of indices or to write in their own index. For each index of their choosing, the panelists provided forecasts for growth in 2014 and 2015.
Twenty-three 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 six house-price indices listed in the table below range from 2.1 percent to 7.0 percent in 2014 and from 2.7 percent to 4.9 percent in 2015.
2014 (Q4/Q4 Percent Change) | 2015 (Q4/Q4 Percent Change) | |||||
|---|---|---|---|---|---|---|
| Index | N | Mean | Median | N | Mean | Median |
| S&P/Case-Shiller: U.S. National | 6 | 5.6 | 5.9 | 6 | 4.4 | 4.9 |
| S&P/Case-Shiller: Composite 20 | 6 | 4.8 | 4.5 | 6 | 3.5 | 3.2 |
| FHFA: U.S. Total | 6 | 7.2 | 6.3 | 6 | 3.1 | 2.7 |
| FHFA: Purchase Only | 5 | 5.1 | 5.8 | 5 | 2.7 | 2.9 |
| CoreLogic: National HPI, incl. Distressed Sales (Single Family Combined) | 6 | 6.4 | 7.0 | 6 | 4.8 | 4.8 |
| NAR Median: Total Existing | 1 | 2.1 | 2.1 | 1 | 2.8 | 2.8 |
Forecasters See Little Reason to Revise Long-Run Estimates of Growth in Output and Productivity
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 slightly increased 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 2.6 percent over the next 10 years, up from 2.5 percent in the first-quarter survey of 2013.
The forecasters’ current projection for 10-year annual-average productivity growth is 1.80 percent, the same rate they predicted in last year’s first-quarter survey. Stocks are seen returning 6.00 percent annually over the next 10 years, while Treasury bills will return 2.50 percent annually over the same period.
First Quarter 2013 | Current Survey | |
|---|---|---|
| Real GDP Growth | 2.50 | 2.60 |
| Productivity Growth | 1.80 | 1.80 |
| Stock Returns (S&P 500) | 6.13 | 6.00 |
| Rate on 10-Year Treasury Bonds | N.A. | 4.35 |
| Bill Returns (3-Month) | 2.40 | 2.50 |
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, GLCFinancial Economics; Julia Coronado, BNP Paribas; David Crowe, National Association of Home Builders; Nathaniel Curtis, Navigant; Rajeev Dhawan, Georgia State University;Shawn Dubravac, Consumer Electronics Association; Gregory Daco, Oxford Economics USA, Inc.; Michael R. Englund, Action Economics, LLC; Timothy Gill, NEMA; Matthew Halland Daniil Manaenkov, RSQE, University of Michigan; James Glassman, JPMorgan Chase & Co.; Jan Hatzius, Goldman Sachs; 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; Walter Kemmsies, Moffatt & Nichol; Jack Kleinhenz, Kleinhenz & Associates, Inc.; Thomas Lam, OSK-DMG/RHB; L. Douglas Lee, Economics from Washington; Allan R. Leslie, Economic Consultant; John Lonski, Moody’s Capital Markets Group; Macroeconomic Advisers, LLC; Dean Maki, Barclays Capital; Jim Meil and Arun Raha, Eaton Corporation; Anthony Metz, Pareto Optimal Economics; Michael Moran, Daiwa Capital Markets America; Joel L. Naroff, Naroff Economic Advisors; Michael P. Niemira, International Council of Shopping Centers; Luca Noto, Anima Sgr; Brendon Ogmundson, BC Real Estate Association; Martin A. Regalia, U.S. Chamber of Commerce; Philip Rothman, East Carolina University; Chris Rupkey, Bank of Tokyo-Mitsubishi UFJ; John Silvia, Wells Fargo; Allen Sinai, Decision Economics, Inc.; Tara M. Sinclair, Research Program on Forecasting, George Washington University; Sean M. Snaith, Ph.D., University of Central Florida; Neal Soss, Credit Suisse; Stephen Stanley, Pierpont Securities; Charles Steindel, New Jersey Department of the Treasury; 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.
