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Friday, November 28, 2014

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Third Quarter 2013 Survey of Professional Forecasters

Outlook for Growth Weakens

The outlook for growth in the U.S. economy over the next four years is weaker than that of three months ago, according to 41 forecasters surveyed by the Federal Reserve Bank of Philadelphia. The panel expects real GDP to grow at an annual rate of 2.2 percent this quarter and 2.3 percent next quarter and to rise to 2.9 percent in the second quarter of 2014. On an annual-average over annual-average basis, the forecasters see real GDP growing 1.5 percent in 2013, down from the previous estimate of 2.0 percent. The forecasters predict real GDP will grow 2.6 percent in 2014 and 2.9 percent in 2015, before falling to 2.5 percent in 2016.

The outlook for the labor market remains nearly unchanged. The forecasters predict that the unemployment rate will be an annual average of 7.5 percent in 2013, before falling to 7.1 percent in 2014, 6.6 percent in 2015, and 6.1 percent in 2016. These projections are similar to those of the last survey.

The forecasters’ projections for the annual-average level of nonfarm payroll employment suggest job gains at a monthly rate of 183,800 in 2013 and 180,100 in 2014, 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.)

Median Forecasts for Selected Variables in the Current and Previous Surveys
Real GDP (%)
Unemployment Rate (%)
Payrolls (000s/month)
Previous
New
Previous
New
Previous
New
Quarterly data:
2013:Q3
2.3
2.2
7.5
7.4
142.7
169.4
2013:Q4
2.7
2.3
7.4
7.3
173.3
178.6
2014:Q1
2.5
2.7
7.3
7.2
179.0
171.2
2014:Q2
3.2
2.9
7.2
7.1
184.9
185.4
2014:Q3
N.A.
2.9
N.A.
7.0
N.A.
181.4
Annual data (projections are based on annual average levels):
2013
2.0
1.5
7.6
7.5
169.8
183.8
2014
2.8
2.6
7.1
7.1
180.4
180.1
2015
3.0
2.9
6.6
6.6
N.A.
N.A.
2016
2.9
2.5
6.1
6.1
N.A.
N.A.

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 forecasters see lower probability of growth in the upper ranges in 2013. The probability estimates for growth in 2014, 2015, and 2016 are about the same now as they were in the previous survey.

The forecasters’ current density projections for unemployment, shown below, are little changed in 2013 and 2014, compared with their previous estimates. For 2013, the forecasters see a near 50 percent chance that unemployment will average between 7.5 percent and 7.9 percent. For 2014, the forecasters see a near 40 percent chance that unemployment will average between 7.0 percent and 7.4 percent.

Forecasters Cut Their Near-Horizon Estimates for Inflation but Hold the Line at Longer Horizons

The forecasters are reducing their inflation estimates over the next two years compared with their previous estimates, even as they hold the line at longer horizons. They see headline and core CPI inflation and headline and core PCE inflation at lower levels in 2013 and 2014 than they predicted three months ago, but left their 2015 projections nearly unchanged.

Headline PCE inflation will average 1.2 percent this year and 1.8 percent in 2014, marking downward revisions from the previous estimates of 1.4 percent and 2.0 percent, respectively, in the last survey. The current projection of 2.0 percent in 2015 is unchanged from the previous estimate.

Core PCE inflation will average 1.3 percent this year (down from 1.5 percent in the last survey) and 1.8 percent in 2014 (down from 1.9 percent). The forecasters continue to see core PCE inflation averaging 1.9 percent in 2015.

Ten-year annual-average PCE inflation is projected to be 2.0 percent, the same rate the forecasters predicted in the last survey.

Median Short-Run and Long-Run Projections for Inflation (Annualized Percentage Points)
Headline CPI
Core CPI
Headline PCE
Core PCE
Previous
Current
Previous
Current
Previous
Current
Previous
Current
Quarterly
2013:Q3  
2.0
2.0
2.0
1.9
1.8
2.0
1.6
1.4
2013:Q4
2.0
1.7
2.0
1.9
1.9
1.7
1.8
1.5
2014:Q1
2.0
1.8
2.0
2.0
1.9
1.8
1.9
1.7
2014:Q2
2.2
1.9
2.1
2.0
2.0
1.8
1.9
1.7
2014:Q3
N.A.
2.1
N.A.
2.0
N.A.
1.9
N.A.
1.8
Q4/Q4 Annual Averages
2013
1.7
1.4
2.0
1.8
1.4
1.2
1.5
1.3
2014
2.2
2.0
2.1
2.0
2.0
1.8
1.9
1.8
2015
2.3
2.2
2.1
2.1
2.0
2.0
1.9
1.9
Long-Term Annual Averages
2013–2017
2.2
2.1
N.A.
N.A.
2.0
2.0
N.A.
N.A.
2013–2022
2.3
2.2
N.A.
N.A.
2.0
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 the projections for 10-year annual-average CPI and PCE inflation. The top panel shows a slightly lower estimate for 10-year CPI inflation. The bottom panel highlights the unchanged 10-year forecast for PCE inflation, at 2.0 percent.

The figures below show the probabilities that the forecasters are assigning to the possibility that fourth-quarter over fourth-quarter core PCE inflation in 2013 and 2014 will fall into each of 10 ranges. For 2013, the forecasters assign a higher chance than previously that core PCE inflation will fall below 1.4 percent.

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 a 10.5 percent chance of negative growth, down from 14.3 percent in the survey of three months ago.

Risk of a Negative Quarter (%)
Survey Means
Quarterly data:
Previous
New
2013:Q3
14.3
10.5
2013:Q4
13.1
11.2
2014:Q1
13.4
11.7
2014:Q2
12.5
11.5
2014:Q3
N.A.
11.8

Natural Rate of Unemployment Estimated at 6.0 Percent

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. The forecasters peg this rate at 6.0 percent. The table below shows, for each third-quarter survey since 1996, the percentage of respondents who use the natural rate in their forecasts and, for those who use it, the median estimate and the lowest and highest estimates. Seventy-nine percent of the 28 forecasters who answered the question report that they use the natural rate in their forecasts. The lowest estimate is 4.75 percent and the highest estimate is 7.0 percent.

Median Estimates of the Natural Rate of Unemployment
Survey Date
Percentage Who Use The Natural Rate
Median Estimate (%)
Low (%)
High (%)
1996:Q3
62
5.65
5.00
6.00
1997:Q3
59
5.25
4.50
5.88
1998:Q3
47
5.30
4.50
5.80
1999:Q3
43
5.00
4.13
5.60
2000:Q3
48
4.50
4.00
5.00
2001:Q3
34
4.88
3.50
5.50
2002:Q3
50
5.10
3.80
5.50
2003:Q3
41
5.00
4.31
5.40
2004:Q3
46
5.00
4.00
5.50
2005:Q3
51
5.00
4.25
5.50
2006:Q3
53
4.95
4.00
5.50
2007:Q3
52
4.65
4.20
5.50
2008:Q3
48
5.00
4.00
5.50
2009:Q3
61
5.00
4.00
6.00
2010:Q3
64
5.78
4.50
6.80
2011:Q3
41
6.00
4.75
7.00
2012:Q3
63
6.00
4.75
7.00
2013:Q3
79
6.00
4.75
7.00

The Federal Reserve Bank of Philadelphia thanks the following forecasters for their participation in recent surveys:

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; Julia Coronado, BNP Paribas; David Crowe, National Association of Home Builders; Nathaniel Curtis, EconLit LLC; Rajeev Dhawan, Georgia State University; Shawn Dubravac, Consumer Electronics Association; Michael R. Englund, Action Economics, LLC; Timothy Gill, NEMA; 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; 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; Mark Nielson, Ph.D., MacroEcon Global 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; David Sloan, Thomson Reuters; 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; Lea Tyler, Oxford Economics USA, Inc; Richard Yamarone, Bloomberg, LP; Mark Zandi, Moody's Analytics; Ellen Zentner, Nomura Securities.

This is a partial list of participants. We also thank those who wish to remain anonymous.

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Third Quarter 2013 PDF

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The survey for 2013 Q4 will be released on November 25, 2013.

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For further information about the Survey of Professional Forecasters, contact:

Tom Stark
Federal Reserve Bank of Philadelphia
Ten Independence Mall
Philadelphia, PA 19106
PHIL.SPF@phil.frb.org E-mail