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

Third Quarter 2008 Survey of Professional Forecasters

Release Date: August 12, 2008

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

Forecasters Project Another Round of Cuts to the Outlook for Short-Term Growth

Growth in U.S. real output over the next few quarters looks slower now than it did just three months ago, according to 47 forecasters surveyed by the Federal Reserve Bank of Philadelphia. This is the sixth survey, beginning with the survey of the second quarter of 2007, in which the outlook for growth appears weaker. In the current quarter, real GDP is expected to grow at an annual rate of 1.2 percent, down from the previous estimate of 1.7 percent. The largest downward revision (1.1 percentage points at an annual rate) is for the fourth quarter, when real GDP is projected to grow at an annual rate of 0.7 percent, down from the previous projection of 1.8 percent. The forecasters also reduced their estimates by 0.7 percentage point for growth in the first quarter of 2009 and by 0.4 percentage point for growth in the second quarter of 2009. Year over year, growth is expected to average 1.7 percent in 2008 and 1.5 percent in 2009. Previously, the forecasters expected growth of 1.5 percent this year and 2.2 percent in 2009.

The charts below provide some information on the degree of uncertainty the forecasters have about year-over-year growth. Each chart presents the forecasters’ estimates of the probability that growth will fall into each of six ranges. For 2008, the forecasters have increased their estimates that growth will be in the range of 1.0 to 1.9 percent, compared with their estimates of three months ago. Conversely, they have reduced their estimates that growth will be in the other five ranges. For 2009, the forecasters have raised 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 see a 57 percent chance that year-over-year growth in 2008 will fall in the range of 1.0 to 1.9 percent. For 2009, they forecast a probability of 43 percent that year-over-year growth will fall in the range of 1.0 to 1.9 percent.

• Mean Probabilities for Real GDP Growth in 2008 (chart)
• Mean Probabilities for Real GDP Growth in 2009 (chart)

Deteriorating Conditions in the Labor Market

A weaker near-term outlook for the labor market accompanies the outlook for slower output growth. The forecasters predict unemployment will rise from 5.7 percent this quarter to 6.0 percent in the first quarter of 2009. Previously, they forecasted unemployment would rise from 5.4 percent to 5.5 percent over the same period. Unemployment is expected to average 5.4 percent this year and 6.0 percent in 2009. On the jobs front, the forecasters project job losses in the current quarter at a rate of 46,500 per month. They also see a reduction in jobs of 45,400 per month in the fourth quarter of 2008 and 29,800 in the first quarter of 2009. They previously estimated job losses of 4,800 in the current quarter and job gains of 26,500 and 55,500 per month in the fourth quarter of 2008 and the first quarter of 2009. On an annual average basis, monthly jobs are expected to be flat in 2008, down from a gain of 18,300 previously, and they are expected to gain only 1,800 in 2009, down from a gain of 61,600 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 Chance of a Downturn

The risk for a quarter of negative growth in real GDP has risen. As the table below shows, the forecasters have revised upward the likelihood of a quarter of negative growth over the next four quarters. The forecasters see a 47 percent chance of negative growth in the fourth quarter of 2008, up from 30 percent in the last survey.

Little Change to Near-Term Core Inflation Forecasts

The outlook for core CPI inflation (fourth-quarter over fourth-quarter) averages about 2.2 percent over each of the next three years, down slightly from the previous estimate of 2.3 percent in each of the next three years (not shown in the table below). Conversely, the forecasters have raised their estimates 0.1 percentage point for core PCE inflation in 2008, from 2.1 percent (not shown) to 2.2 percent. The forecasters see slightly lower core PCE inflation for 2009 and 2010—from about 2.1 percent in both years (not shown) in the last survey to 2.0 percent in this survey.

Long-Term Expectations for Headline Inflation Hold Steady

Turning to the long run, as the table below shows, headline CPI inflation will average 2.6 percent over the next five years, matching the forecasters’ previous estimate (not shown). Similarly, the forecasters have not changed the estimate for headline CPI inflation over the next 10 years, 2008-2017. That estimate remains at 2.5 percent. The forecasters predict headline PCE inflation will average 2.3 percent over the next five years and 2.2 percent over the next 10 years, the same as in their previous estimates (not shown).

The figures below show the probabilities that the forecasters are assigning to the possibility that fourth-quarter over fourth-quarter core PCE inflation in 2008 and 2009 will fall into each of 10 ranges. The figures show the estimates for the current survey and the survey of three months ago.

For 2008, the forecasters have raised the probability that inflation will be in the range of 2.0 to 2.4 percent. That estimate now stands at 48 percent, up from 44 percent previously. The probabilities that inflation will fall in the range of 1.5 to 1.9 percent and 2.5 to 2.9 percent are little changed from those the forecasters assigned in the survey of three months ago. For 2009, the forecasters have increased their estimates that core PCE inflation will be in the range of 2.4 percent or lower compared with their estimates of three months ago. They also see a lower chance that core PCE will be 2.5 percent or more.

• Mean Probabilities for Core PCE Inflation in 2008 (chart)
• Mean Probabilities for Core PCE Inflation in 2009 (chart)

Equilibrium Unemployment Pegged at 5 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 5 percent, up from their estimate of 4.65 percent in last year’s third-quarter survey. The table below shows, for each third-quarter survey since 2001, the percentage of respondents who use the natural rate in their forecasts, and for those who use it, the median estimate and the highest and lowest estimates. In the current survey, 48 percent of the 42 forecasters who answered the question report that they use the natural rate in their forecasts. The lowest estimate is 4 percent and the highest estimate is 5.5 percent.

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.; Jay Brinkmann, Mortgage Bankers Association; 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; Shawn Dubravac, Consumer Electronics Association; Michael R. Englund, Action Economics, LLC; Fannie Mae; 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; Peter Hooper, Deutsche Bank Securities, Inc.; 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; Allan R. Leslie, Economic Consultant; 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; 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; 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.