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Home > Research & Data > Real-Time Data Research Center > Survey of Professional Forecasters > Third Quarter 2002

Third Quarter 2002 Survey of Professional Forecasters

Release Date: August 22, 2002

Forecasters Scale Back Their Estimates for Near-Term Growth

Although the U.S. economy is expected to grow in each of the next five quarters, such growth will likely be at rates lower than those expected just three months ago, according to 35 forecasters surveyed by the Federal Reserve Bank of Philadelphia. The forecasters are marking down their estimates for growth over the remainder of 2002; they expect the economy to grow at an annual rate of 2.4 percent in the third quarter and 2.6 percent in the fourth quarter. In the survey of three months ago, the forecasters thought the economy would expand at an annual rate of 3.2 percent in the third quarter and 3.4 percent at year's end. On a year-over-year basis, the forecasters have reduced their forecasts for growth 0.4 percentage point in 2002 and 2003. At present, those forecasts stand at 2.3 percent in 2002 and 3.0 percent in 2003.

Not surprisingly, the forecasters anticipate a slightly higher rate of unemployment over the next five quarters than they did in the last survey. That rate will hold steady at 6.0 percent in each of the remaining quarters of this year before falling gradually to 5.6 percent in the third quarter of next year. Previously, the forecasters projected the unemployment rate would average 5.9 percent in the third quarter and drop to 5.8 percent in the fourth quarter. On an annual average basis, the unemployment rate is expected to fall from 5.9 percent this year to 5.7 percent in 2003, although these projections mark increases of 0.1 and 0.2 percentage point, respectively, over the projections of three months ago.

A flatter path for inflation over the near term accompanies the outlook for slower growth and higher unemployment. Measured by the fourth-quarter over fourth-quarter rate of change in the CPI, inflation will average 2.3 percent in both 2002 and 2003. In contrast, in the survey of three months ago, the forecasters thought CPI inflation would accelerate from 2.2 percent in 2002 to 2.5 percent in 2003.

Interest Rates Seen at Lower Levels

The forecasters are cutting their forecasts for interest rates over the next two years. The rate on three-month Treasury bills is now expected to average 1.7 percent in 2002 and 2.5 percent in 2003. In the survey of three months ago, the forecasters expected the three-month rate to average 2.0 percent in 2002 and 3.4 percent in 2003. Similar downward revisions characterize the outlook for long-term rates, as measured by the rate on 10-year Treasury bonds. The forecasters see that rate averaging 4.8 percent in 2002 and 5.2 percent in 2003, down from 5.3 percent and 5.7 percent, previously.

A Slightly Higher Chance of a Negative Quarter Is Seen

A slightly higher chance of a decline in real GDP in the next four quarters accompanies the downward revisions to the outlook for growth. The forecasters see a 15 percent chance that real GDP will decline in the current quarter, up a bit from their previous estimate of 14 percent. That chance rises to 19 percent in the fourth quarter, marking an upward revision from 12 percent in the previous survey.

Long-Term Expectations for Inflation Hold Steady

Long-term expectations for inflation are holding steady. The forecasters expect the annual average rate of change in the Consumer Price Index over the next 10 years to be 2.50 percent, the same rate expected in the last survey. The middle range of forecasts is 2.40 percent to 2.70 percent.

Equilibrium Unemployment Rises

In third-quarter surveys, we ask the forecasters to provide their estimates of the natural rate of unemployment — the rate of unemployment that occurs when the economy reaches equilibrium. Sixteen of the 32 participants who answered the question report that they use the natural rate in their forecasts. Among these 16, the median estimate for the natural rate is 5.10 percent, marking an increase from the previous survey's estimate of 4.88 percent. The lowest estimate of the natural rate is 3.80 percent, and the highest estimate is 5.50 percent.

Forecasters Peg the End of the Recession

The National Bureau of Economic Research (NBER), the nation's official arbiter of the dating of peaks and troughs in economic activity, declared that a peak in economic activity occurred in March 2001. The NBER declares peaks and troughs some months after the month of the peak or trough. In this survey, we asked the forecasters about their views on the date the NBER will say marks the corresponding trough in economic activity. Thirty-one participants answered the question. A large number (12) of the forecasters think the NBER will declare the trough occurred in December 2001. A slightly smaller number (8) think the trough occurred just a bit later, in January or February of this year. Notably, only two forecasters think the recession has not yet ended.

The Philadelphia Fed's Survey of Professional Forecasters was formerly conducted by the American Statistical Association (ASA) and the National Bureau of Economic Research (NBER) and was known as the ASA/NBER survey. The survey, which began in 1968, is conducted each quarter. The Federal Reserve Bank of Philadelphia, in cooperation with the NBER, assumed responsibility for the survey in June 1990.

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