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Home > Research & Data > Real-Time Data Research Center > Survey of Professional Forecasters > First Quarter 2005

First Quarter 2005 Survey of Professional Forecasters

Release Date: February 14, 2005

Forecasters See Stronger Growth in the First Half of 2005…

Economic growth in the first half of 2005 looks stronger now than it did three months ago, according to 36 forecasters surveyed by the Federal Reserve Bank of Philadelphia. The forecasters expect growth in real GDP to average an annual rate of 3.7 percent over the next two quarters, marking an upward revision from their estimate of 3.4 percent in the survey of three months ago. For the year, the forecasters expect growth on an annual-average over annual-average basis of 3.6 percent, up from their previous estimate of 3.5 percent. In their first look at 2006 for this survey, the forecasters project growth of 3.4 percent.

The forecasters see little reason to change their projections for inflation or unemployment. Measured by the fourth-quarter over fourth-quarter rate of change in the consumer price index, inflation is expected to average 2.3 percent in 2005, up just a bit from the previous estimate of 2.2 percent, and hold steady at 2.3 percent in 2006. Year-over-year growth in the GDP price index will average 2.0 percent in 2005, unchanged from the estimate of the previous survey, and rise to 2.1 percent next year. The forecasters see the unemployment rate averaging 5.2 percent this year, just a bit below their previous estimate of 5.3 percent, and falling in 2006, to an annual average of 5.0 percent.

… Even as They Raise Their Projections for Short-Term Interest Rates

Even as the forecasters are raising their projections for economic growth in the first half, they are also raising their projections for short-term interest rates. Short-term interest rates, as measured by the rate on three-month Treasury bills, will average 3.0 percent in 2005. That marks an upward revision from 2.7 percent in the last survey. The forecasters expect short-term rates to rise a full percentage point in 2006, to an annual average rate of 4.0 percent. Interestingly, the forecasters have cut their projection for long-term interest rates. The rate on 10-year Treasury bonds is now expected to average 4.6 percent in 2005, down from 4.8 percent in the last survey. Long-term rates are seen averaging 5.3 percent in 2006.

Slightly Lower Job Gains Expected

The forecasters have trimmed their estimates for jobs gains this year—but not by much. Although the growth in nonfarm payroll employment in the current quarter is expected to average an annual rate of 1.4 percent, down from 1.8 percent in the previous survey, growth for the year is expected to average 1.6 percent on an annual-average over annual-average basis, down just a bit from the forecasters' previous estimate of 1.7 percent. Looking ahead to 2006, the forecasters also see job gains at an annual rate of 1.6 percent. Measured by the monthly flow (using the annual average of nonfarm payroll employment), the number of new jobs will increase at a rate of 174,000 per month in 2005 and 178,000 per month in 2006.

Reduced Risk of a Negative Quarter

A lower chance of a downturn in real GDP over the first half of 2005 accompanies the forecasters' upward revision to growth over that period. The forecasters see a 5 percent chance that real GDP will fall in the current quarter, down from their estimate of 10 percent in the last survey. Although the chance of a downturn in the second quarter rises to 8 percent, that is below the forecasters' previous estimate of 11 percent.

New Long-Term Projections

In first-quarter surveys, we ask the forecasters to provide long-term forecasts for an expanded set of variables, including growth in real GDP and productivity, and returns on financial assets. As the table below shows, the forecasters have trimmed their estimate for annual average growth in real GDP over the next 10 years, even as their estimate for productivity growth is unchanged. Currently, the forecasters expect real GDP to grow at an average annual rate of 3.3 percent over the next 10 years, down from 3.4 percent in the first-quarter 2004 survey, and productivity to grow at 2.50 percent. The forecasters see lower returns to equities (7.00 percent) and 10-year Treasury bonds (5.00 percent) than they expected last year. Only three-month Treasury bills will return more over the next 10 years (3.70 percent) than the forecasters thought last year. Inflation over the next 10 years will average about the same as the forecasters thought last year.

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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