The rate of growth in U.S. output over the next few quarters looks slower now than it did just three months ago, according to 51 forecasters surveyed by the Federal Reserve Bank of Philadelphia. The largest downward revisions to growth occur in the next two quarters, when the forecasters expect real GDP to grow at an annual rate of 2.5 percent in the current quarter, down from their previous estimate of 2.9 percent, and 2.7 percent in the first quarter of next year, down from 2.9 percent. On an annual-average over annual-average basis, real GDP will grow 3.3 percent this year and 2.6 percent in 2007. Previously, the forecasters expected growth of 3.4 percent in 2006 and 2.8 percent in 2007. The forecasters have reduced their estimates for growth in 2007 in each of the surveys this year. They began the year, in February, expecting growth in 2007 of 3.2 percent. In each of the next three surveysconducted in May, August, and Novemberthe forecasters cut their estimates 0.2 percentage point, leading to this survey’s current estimate of 2.6 percent.
Despite the forecasters’ somewhat weaker outlook for growth, their outlook for the labor market is holding steady. They project the unemployment rate will average 4.7 percent this year, unchanged from their previous estimate, and 4.8 percent in 2007, down marginally from their previous estimate of 4.9 percent. On the jobs front, the forecasters see nonfarm payroll employment increasing at a rate of 155,000 per month in 2006 and 119,000 per month in 2007. Their previous estimates called for job growth at a rate of 154,000 per month in 2006 and 126,000 per month in 2007.
Measured by either the rate of change in the consumer price index or the price index for GDP, the short-run inflation outlook looks better now than it did in the last survey. The forecasters expect CPI inflation to average 2.4 percent in 2006 (fourth-quarter over fourth-quarter), down almost a percentage point from their previous estimate of 3.3 percent, and 2.6 percent in 2007, unchanged from the estimate of three months ago. An alternative, broader measure of inflation given by the rate of growth in the price index for GDP is expected to average 3.0 percent this year (annual-average over annual-average) and 2.3 percent next year. Previously, the forecasters thought GDP inflation would average 3.1 percent this year and 2.5 percent next year.
At longer horizons, the forecasters see little reason to change their outlook for CPI inflation. As the table below shows, CPI inflation is expected to average 2.50 percent in 2008, 2.60 percent over the next five years, and 2.50 percent over the following five-year period. These estimates are nearly unchanged from those of the previous survey. On average, over the next 10 years, CPI inflation is expected to be 2.50 percent.
Projections for short-term interest rates, as measured by the rate on three-month Treasury bills, have been revised downward. The forecasters now see the three-month bill rate averaging 4.8 percent in each of the next two years, marking a downward revision from the previous estimates of 4.9 percent in 2006 and 5.0 percent in 2007. Notably, they see short rates holding steady at 5.0 percent over the next two quarters, before dropping in the second and third quarters of next year. The forecasters also see long-term interest rates, as measured by the rate on 10-year Treasuries, at lower levels than they thought previously. The 10-year rate will average nearly the same as the short-term rate over the next two years, 4.8 percent in 2006 and 4.9 percent in 2007.
The Federal Reserve Bank of Philadelphia thanks the following forecasters for their participation in the surveys of this year:
Joseph T. Abate, Lehman Brothers; Scott Anderson, Wells Fargo and Company; Robert J. Barbera, ITG Inc.; David W. Berson, Fannie Mae; Joseph Carson, Alliance Capital Management; Gary Ciminero, CFA, Rhode Island House Policy Office; Richard DeKaser, National City Corporation; Rajeev Dhawan, Georgia State University; Doug Duncan, Mortgage Bankers Association; Michael R. Englund, Action Economics, LLC; Gerard F. Fuda, Independent Economist; Stephen Gallagher, Societe Generale; James Glassman, JP Morgan Chase & Co.; Global Insight; Keith Hembre, First American Funds; David Huether, National Association of Manufacturers; William B. Hummer, Wayne Hummer Investments; Saul Hymans, Joan Crary, and Janet Wolfe, RSQE, The University of Michigan; Peter Jaquette, Weyerhaeuser Company; Fred Joutz, Benchmark Forecasts and Research Program on Forecasting, George Washington University; Kurt Karl, Swiss Re; Dr. Irwin Kellner, Hofstra University/MarketWatch/North Fork Bank; Thomas Lam, UOB Group; L. Douglas Lee, Economics from Washington; Allan R. Leslie, Economic Consultant; Joseph Liro, Stone & McCarthy Research Associates; John Lonski, Moody’s Investors Service; Dean Maki, Barclays Capital; Edward F. McKelvey, Goldman Sachs; Jim Meil, Eaton Corporation; Anthony Metz, Pareto Optimal Economics; Michael Moran, Daiwa Securities America; Joel L. Naroff, Naroff Economic Advisors; Mark Nielson, Ph.D., MacroEcon Global Advisors; Michael P. Niemira, International Council of Shopping Centers; Martin A. Regalia, U.S. Chamber of Commerce; David Resler, Nomura Securities International, Inc.; David Rosenberg, Merrill Lynch; John Ryding, Bear, Stearns, and Company, Inc.; David F. Seiders, National Association of Home Builders; Xiaobing Shuai, Ph.D., Chmura Economics & Analytics; Julian Silk, UMUC/GWU; Allen Sinai, Decision Economics, Inc; Tara M. Sinclair, Research Program on Forecasting, George Washington University; Sean M. Snaith, Ph.D., University of Central Florida; Constantine G. Soras, Ph.D., Verizon Communications; Neal Soss, Credit Suisse; Stephen Stanley, RBS Greenwich Capital; Susan M. Sterne, Economic Analysis Associates, Inc.; Edward Sullivan, Portland Cement Association; Thomas Kevin Swift, American Chemistry Council; David Teolis, General Motors Corporation; Gary Thayer, A.G. Edwards; Lea Tyler, Oxford Economics USA, Inc.; Chris Varvares and Nandini Nagraj, Macroeconomic Advisers, LLC; Albert M. Wojnilower; Jay N. Woodworth, Woodworth Holdings, Ltd.; Richard Yamarone, Argus Research Group; Mark Zandi, Economy.com; Ellen Beeson Zentner, Bank of Tokyo-Mitsubishi UFJ, Ltd.
This is a partial list of participants. We also thank those who wish to remain anonymous.
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.
Return to the main page for the Survey of Professional Forecasters.