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Home > Research & Data > Real-Time Data Research Center > Survey of Professional Forecasters > First Quarter 2008

First Quarter 2008 Survey of Professional Forecasters

Release Date: February 12, 2008

Listen to an interview with a Research analyst for this quarter's survey.

First-Half Estimates for Growth Revised Downward

The outlook for growth in the first half of 2008 looks much weaker now than it did three months ago, according to 50 forecasters surveyed by the Federal Reserve Bank of Philadelphia. However, the forecasters are not predicting a contraction. Growth in the current quarter is projected at an annual rate of 0.7 percent, down from the projection of 2.2 percent in last year’s fourth-quarter survey. The forecasters are pegging the probability of a downturn this quarter at 47 percent, as discussed in a section below. The forecasters expect growth of 1.3 percent in the second quarter, marking a downward revision from 2.3 percent previously, and they are assigning a probability of 43 percent to negative growth. The forecasters see growth of 2.8 percent in each quarter of the second half of the year. This projection is very nearly equal to the forecasters’ new estimate for long-run average growth, discussed in a section below.

On an annual-average over annual-average basis, real GDP will grow 1.8 percent in 2008 and 2.8 percent in 2009. The projection for 2008 is down from 2.5 percent in the last survey. The accompanying charts provide some information on the degree of uncertainty the forecasters have about their views on year-over-year growth. Each chart presents the forecasters’ estimates of the probability that growth will fall into each of six ranges. For 2008 (see chart), the forecasters have raised their estimates that growth will fall in the range of 1.9 percent or lower compared with their estimates of three months ago. Conversely, they see a lower chance that growth will be 2.0 percent or more. The forecasters think there is a 41 percent chance that year-over-year growth in 2009 (see chart) will fall in the range of 2.0 to 2.9 percent.

A weaker outlook for the labor market accompanies the current projection for output growth. The forecasters have revised upward their estimates for unemployment 0.2 percentage point in each of the next four quarters. They see unemployment rising from 5.0 percent this quarter to 5.2 percent at year’s end. Unemployment will average 5.1 percent this year and in 2009. The outlook for growth in nonfarm payroll employment also looks weaker now than it did three months ago. The forecasters have revised downward their projections for job gains this quarter, to just 39,000 per month. Their previous estimate for job gains in the first quarter was 101,000 per month. Downward revisions also characterize the outlook for the remaining quarters of the year. Monthly job gains will average 75,000 in 2008, down from 104,000 previously, and nearly 100,000 in 2009.

The deadline for returns to this survey was February 6, one day before the U.S. Congress passed a fiscal stimulus package, which would cost $152 billion in 2008. However, in response to a special question, 38 panelists report that they anticipated the effects of such a package. The median estimate of the size of the package among these economists is $150 billion, just a bit shy of the amount agreed upon by Congress. We also asked the forecasters when they think the package will begin to affect real GDP and how large the effect will be. Thirteen economists report an effect beginning in the second quarter and 19 think the effect will begin in the third quarter. Two estimated that the effect will not begin until the fourth quarter, and the remainder did not provide answers. The effect, based on the median response, on annual-average over annual-average growth in real GDP is gauged at 0.3 percentage point in 2008 and 0.1 percentage point in 2009. Notably, a wide divergence of opinion surrounds these median estimates, with the projections ranging from 0 to 1.5 percentage points in 2008 and -1.0 to 0.75 percentage point in 2009.

Forecasters See Increased Risk of a Downturn

The risk of a contraction has risen in this survey. Although the forecasters’ median estimate for real GDP this quarter and the next suggests slow, but positive growth, they think the risk of a contraction is high. That risk is pegged at 47 percent for growth this quarter, up from 23 percent previously, and 43 percent for growth in 2008 Q2, up from 22 percent. These current-quarter and one-quarter-ahead risks have not been this high since the survey of 2001 Q4, when they were 82 percent and 49 percent, respectively. The risk of a contraction in the quarters of the second half of the year are quite a bit lower than those of the first half.

Mixed News on the Inflation Front

The characterization of this quarter’s projections for inflation depends on the measure of inflation and the horizon forecast. On a fourth-quarter over fourth-quarter basis, core CPI inflation will average roughly 2.2 percent in each of the next three years. Fourth-quarter over fourth-quarter core PCE inflation will average 2.0 percent in each of the next three years. Thus, neither projection suggests that the forecasters anticipate acceleration in the near term. The annual projections for core CPI inflation in 2008 and 2009 are about the same now as they were in the previous survey, when the forecasters projected this measure would be 2.2 percent in both years. In contrast, the forecasters have raised their estimates 0.1 percentage point for core PCE inflation in 2008 and 2009—from 1.9 percent in both years in the last survey to 2.0 percent in this survey.

Over the next 10 years, 2008 to 2017, the forecasters expect headline CPI inflation to average an annual rate of 2.50 percent, while headline PCE inflation will average 2.20 percent. Both estimates are up from the last survey, when the forecasters thought inflation over the 10-year period from 2007 to 2016 would average 2.40 percent in the CPI and 2.10 percent in the PCE price index.

The forecasters were asked to assign probabilities to the possibility that fourth-quarter over fourth-quarter core PCE inflation in 2008 and 2009 will fall into each of 10 ranges.

The probabilities for 2008 (see chart) are little changed from those the forecasters assigned in the survey of three months ago. They see a slightly lower chance that core PCE inflation in 2008 will fall into the range of 1.5 percent to 2.4 percent and a slightly higher chance that inflation will fall into the range of 2.5 percent to 2.9 percent. For 2009 (see chart), the forecasters are assigning a probability of roughly 30 percent to inflation falling into either the range of 1.5 percent to 1.9 percent or 2.0 percent to 2.4 percent.

Downward Revisions to Long-Term Output and Productivity Growth and Returns to Financial Assets

In first-quarter surveys, the forecasters provide their long-run projections for an expanded set of variables, including growth in output and productivity, as well as returns on financial assets. The forecasters have trimmed their long-run estimates for the annual average rate of growth in real GDP and productivity. They now see real GDP growing 2.75 percent per year over the next 10 years, down from their estimate of 3.00 percent in the survey of 2007 Q1. Similarly, productivity growth is now expected to average 2.00 percent, down from 2.20 percent. Downward revisions to the return on financial assets, with the exception of 10-year Treasuries, accompany the current outlook. The forecasters see the S&P 500 returning 6.50 percent per year, down from 7.50 percent, and three-month Treasury bills returning 4.00 percent, down from 4.50 percent. The forecasters continue to expect 10-year Treasuries to return 5.00 percent per year over the next 10 years.

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

Scott Anderson, Wells Fargo and Company; Robert J. Barbera, ITG Inc.; Joseph Carson, Alliance Capital Management; Christine Chmura, Ph.D. and Xiaobing Shuai, Ph.D., Chmura Economics & Analytics; 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; Jeoff Hall, Thomson Financial, IFR; Keith Hembre, First American Funds; William B. Hummer, Wayne Hummer Investments; Saul Hymans, Joan Crary, and Janet Wolfe, RSQE, 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; Jack Kleinhenz, Kleinhenz & Associates, Inc.; Thomas Lam, UOB Group; L. Douglas Lee, Economics from Washington; Mickey D. Levy, Bank of America; Joseph Liro, Stone & McCarthy Research Associates; John Lonski, Moody’s Investors Service; Macroeconomic Advisers, LLC; Dean Maki, Barclays Capital; Drew Matus, Lehman Brothers; 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; Luca Noto, Monte Paschi Asset Management; 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; John Silvia, Wachovia Corporation; 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.; Thomas Kevin Swift, American Chemistry Council; Lea Tyler, Oxford Economics USA, Inc.; Albert M. Wojnilower; 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.

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