Fourth Quarter 2014 Survey of Professional Forecasters See Steady Outlook for Growth with Improved Outlook for Labor Market

by Philadelphia Fed

The outlook for growth in the U.S. economy over the next four years is little changed from the survey of three months ago, according to 42 forecasters surveyed by the Federal Reserve Bank of Philadelphia. The forecasters predict real GDP will grow at an annual rate of 2.7 percent this quarter and 2.8 percent next quarter. On an annual-average over annual-average basis, real GDP will grow 2.2 percent in 2014, up slightly from the previous estimate of 2.1 percent. The forecasters predict real GDP will grow 3.0 percent in 2015, 2.9 percent in 2016, and 2.7 percent in 2017.

An improved outlook for the unemployment rate accompanies the outlook for growth. The forecasters predict the unemployment rate will be an annual average of 6.2 percent in 2014, before falling to 5.6 percent in 2015, 5.4 percent in 2016, and 5.2 percent in 2017. The projections for 2014, 2015, and 2017 are a little below those of the last survey. The projection for 2016 remains unchanged.

On the jobs front, the panelists have revised upward their estimates for job gains in the next two quarters. The forecasters see nonfarm payroll employment growing at a rate of 221,600 jobs per month this quarter and 211,200 jobs per month next quarter. The forecasters’ projections for the annual-average level of nonfarm payroll employment suggest job gains at a monthly rate of 206,400 in 2014 and 212,300 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.)

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 presents the forecasters’ previous and current estimates of the probability that growth will fall into each of 11 ranges. The charts show that the estimates of uncertainty about growth in 2015, 2016, and 2017 are nearly the same as those of the previous survey.

• 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 the 10 ranges. The charts show the forecasters have revised upward their estimates of the probability that the annual-average unemployment rate will fall into the lower levels of unemployment outcomes in 2015, 2016, and 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 Project Lower Inflation

The current forecasts for the headline and core measures of CPI and PCE inflation during the next three years are lower now than they were in the previous survey.

The forecasters expect current-quarter headline CPI inflation to average 1.0 percent, lower than the last survey’s estimate of 2.0 percent. The forecasters predict current-quarter headline PCE inflation of 1.2 percent, lower than the prediction of 1.9 percent in the survey of three months ago.

The forecasters also see lower headline and core measures of CPI and PCE inflation in 2015 and 2016. Measured on a fourth-quarter over fourth-quarter basis, headline CPI inflation is expected to average 1.9 percent in 2015, down from 2.2 percent in the last survey, and 2.1 percent in 2016, down 0.2 percentage point from the previous estimate. Forecasters expect fourth-quarter over fourth-quarter headline PCE inflation to average 1.8 percent in 2015, down from 2.0 percent in the last survey, and 1.9 percent in 2016, down 0.1 percentage point from the previous estimate.

Ten-year annual-average CPI and PCE inflation are projected to be 2.20 percent and 2.00 percent, respectively, the same rates the forecasters predicted in the last survey.

The charts below show the median projections (the red line) and the associated interquartile ranges (the gray area around the red line) for the projections for 10-year annual-average CPI and PCE inflation. The top and bottom panels highlight the unchanged 10-year forecast for CPI and PCE inflation, at 2.2 and 2.0 percent, respectively.

• 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 both 2014 and 2015, the forecasters assign a higher chance than previously that core PCE inflation will fall in the lower levels of inflation outcomes.

• Mean Probabilities for Core PCE Inflation in 2014 (chart)
• Mean Probabilities for Core PCE Inflation in 2015 (chart)

Lower Risk of a Negative Quarter

The forecasters see only a small chance of a contraction in real GDP in any of the next five quarters. For the current quarter, they predict an 8.1 percent chance of negative growth, down from 9.7 percent in the previous survey.

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, GLC Financial Economics; David Crowe, National Association of Home Builders; Nathaniel Curtis, Navigant Consulting; Gregory Daco, Oxford Economics USA, Inc.; Rajeev Dhawan, Georgia State University; Michael R. Englund, Action Economics, LLC;Matthew Hall and Daniil Manaenkov, RSQE, University of Michigan; James Glassman, JPMorgan Chase & Co.; Jan Hatzius, Goldman Sachs; Keith Hembre, Nuveen Asset Management; 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; R. Anthony Metz, Pareto Optimal Economics; Michael Moran, Daiwa Capital Markets America; Joel L. Naroff, Naroff Economic Advisors; Luca Noto, Anima Sgr; Brendon Ogmundson, BC Real Estate Association; Tom Porcelli, RBC Capital Markets; Arun Raha, Eaton Corporation; Martin A. Regalia, U.S. Chamber of Commerce; Vincent Reinhart, Morgan Stanley; 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, Amherst Pierpont Securities; Charles Steindel, Ramapo College of New Jersey; Susan M. Sterne, Economic Analysis Associates, Inc.; Thomas Kevin Swift, American Chemistry Council;Gary A. Wagner and Larry Filer, Old Dominion University; 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.