• Research & Data
• Education
• Payment Cards Center
• Bank Resources
• Community Development

• Newsroom
• Careers
• Publications

Thursday, September 2, 2010

[ – ] Text Size [ + ]  |  Print Page

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

Second Quarter 2008 Survey of Professional Forecasters

Release Date: May 13, 2008

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

Forecasters See Home Prices Declining Over the Next Two Years and Rebounding in 2010

In a special question in this survey, the Federal Reserve Bank of Philadelphia asked its panelists for their projections for home prices, as measured by the S&P/Case-Shiller home price index, the OFHEO house price index, and the OFHEO purchase only index. We asked them to provide their projections for fourth-quarter over fourth-quarter growth (percentage points) in the index level in 2008, 2009, and 2010. We also asked the forecasters to estimate the year and quarter in which home prices will stop declining by a significant amount. Finally, we asked the forecasters to tell us the primary index they use in their model.

Fifty panelists participated in this survey, and slightly more than two-thirds — 36 — answered the special question. The table below summarizes the forecasters’ median projections for the three home price indices over the next three years. The forecasters project that home prices, as measured by the Case-Shiller index, will decline 12.0 percent in 2008 and 0.3 percent in 2009. These forecasters see the Case-Shiller index rebounding 3.8 percent in 2010. The OFHEO U.S. total index will fall 4.6 percent this year and 1.0 percent in 2009, before rising 2.1 percent in 2010. Finally, the forecasters expect the OFHEO purchase only index to decline 5.4 percent this year and 0.1 percent next year. The OFHEO purchase only index will increase 2.6 percent in 2010.

We asked the forecasters for their estimate of the year and quarter in which each index will stop declining by a “significant amount.” The median response of those who answered this question for the Case-Shiller index is that this measure will stop declining significantly in the second quarter of 2009. The median response for the two OFHEO measures is that they will stop declining significantly in the first quarter of 2009.

Eight forecasters told us that their primary measure of home prices is the Case-Shiller index. Sixteen indicated that the OFHEO U.S. total index is their primary measure. Four said that the OFHEO purchase only index is their main measure.

Further Cuts to the Outlook for Short-Term Growth; Negative Growth Is Not Expected

The forecasters are cutting their projections for quarter-over-quarter growth compared with their projections in the survey of three months ago. The largest downward revisions (1.1 percentage points at an annual rate) are for the current quarter and the next quarter. In the current quarter, real GDP will grow at an annual rate of just 0.2 percent, down from the previous estimate of 1.3 percent. And for the next quarter, real GDP will grow at an annual rate of 1.7 percent, down from the previous projection of 2.8 percent. The forecasters also cut their estimates one percentage point for growth in the fourth quarter of this year and 0.8 percentage point for growth in the first quarter of 2009. The forecasters do not expect a contraction in real GDP in any of the next five quarters, as the table below shows.

On an annual-average over annual-average basis, real GDP will grow 1.5 percent in 2008 and 2.2 percent in 2009. The projections for 2008 and 2009 are down from 1.8 percent and 2.8 percent, respectively, 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 and 2009, the forecasters have increased their estimates that growth will be in the range of 1.9 percent or lower, compared with their estimates of three months ago. They see a lower chance that growth will be 2.0 percent or more. The forecasters think there is a 48 percent chance that year-over-year growth in 2008 (see chart) will fall in the range of 1.0 to 1.9 percent. For 2009 (see chart), they estimate a probability of 38 percent that year-over-year growth in 2009 will fall in the range of 2.0 to 2.9 percent.

The forecasters see a labor market weaker than that predicted in the last survey. They now predict unemployment will rise from 5.1 percent this quarter to 5.5 percent in the fourth quarter. Previously, they thought unemployment would rise from 5.1 percent to 5.2 percent over the same period. Unemployment will average 5.3 percent this year and 5.6 percent in 2009.

The outlook for growth in nonfarm payroll employment also looks weaker now than it did in the last survey. The forecasters project job losses in the current quarter at a rate of 45,000 per month. They also see a reduction in jobs of 5,000 per month in the next quarter. They previously estimated job gains of 46,000 and 80,000 per month in the current and the next quarter. Monthly job gains will average 18,000 in 2008, down from 75,000 previously, and 62,000 in 2009, down from nearly 100,000 in the last survey.

The table below summarizes the forecasts for real GDP and the labor market and compares the current projections with those of three months ago.

Increased Risk of a Negative Quarter

A higher risk of a contraction accompanies the forecast. As the table below shows, the forecasters have revised upward the chance of a quarter of negative growth for the current quarter, the fourth quarter of 2008, and the first quarter of 2009. The forecasters see a 49 percent chance of negative growth this quarter, up from 43 percent in the last survey.

Upward Revisions to the Outlook for Short-Term Inflation

The outlook for core inflation during the next three years is expected to remain steady, but at a level slightly higher than that forecast in the survey of three months ago. Core CPI inflation (fourth-quarter over fourth-quarter) will average 2.3 percent over each of the next three years, up from the previous estimate of roughly 2.2 percent in each of the next three years (not shown in the table below). The forecasters have a qualitatively similar outlook for core PCE inflation, which is expected to average about 2.1 percent in each of the next three years, up from the previous estimates of 2.0 percent each year (not shown in the table below).

The table below provides more details on the outlook for inflation, including the projections for headline measures and the projections for longer horizons. Headline inflation incorporates the influence of food and energy prices, and these projections are a bit higher at the short horizons than the projections for core inflation. Over the next five years, 2008-2012, headline CPI inflation will average 2.60 percent, 0.20 percentage point higher than the forecasters’ previous estimate (not shown). However, the forecasters have not changed the estimate for headline CPI inflation over the next 10 years, 2008-2017. That estimate remains at 2.50 percent. The forecasters predict headline PCE inflation to average 2.30 percent over the next five years, slightly higher than their previous estimate of 2.25 percent (not shown). The forecasters have not changed their estimate for headline PCE inflation over the next 10 years. That estimate stands at 2.20 percent.

The accompanying charts show the probabilities that the forecasters are assigning to the possibility that fourth-quarter over fourth-quarter core PCE inflation in 2008 (see chart) and 2009 (see chart) will fall into each of 10 ranges. The figures show the estimates for the current survey and the survey of three months ago. For both 2008 and 2009, the forecasters have lowered their estimates that core PCE inflation will be in the range of 1.9 percent or lower compared with their estimates of three months ago. They see a higher chance that core PCE inflation will be 2.0 percent or more. For 2008, the probability that inflation will average between 1.5 percent and 1.9 percent is now 24 percent, down from 32 percent previously. On the other hand, the probability that inflation will average between 2.0 and 2.4 percent in 2008 is now 44 percent, up from 35 percent in the last survey. A qualitatively similar pattern of revisions to the probabilities characterizes the outlook for inflation in 2009.

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; Ethan Harris, Lehman Brothers; 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; Nathaniel Karp, Compass Bank; 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; Edward F. McKelvey, Goldman Sachs; Jim Meil, Eaton Corporation; Anthony Metz, Pareto Optimal Economics; Ardavan Mobasheri, RCAM Capital; 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.; Edward Sullivan, Portland Cement Association; 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.

Return to the main page for the Survey of Professional Forecasters.