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Tuesday, September 30, 2014

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Fourth Quarter 2008 Survey of Professional Forecasters

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

Forecasters State Views on Recession and a New Fiscal Stimulus Package

In a special question in this survey, the Federal Reserve Bank of Philadelphia asked its panelists to provide their views on the possibility of a recession. Forecasters were asked to state if they think the U.S. economy has entered or will soon enter a period of recession, and if so, the month the recession started or will start, and the number of months the recession will last. They were also asked whether their forecasts reflect the influence of a new fiscal stimulus package, and if so, the size of the total package and the distribution of the package among these following categories: higher government consumption and gross investment, higher transfer payments, tax cuts, and other. We asked the forecasters to tell us the effect of the package on their projections for annual-average over annual-average growth in real GDP in 2008, 2009, and 2010. Finally, we asked the forecasters to estimate the year and quarter when the package will begin to affect real GDP growth.

Fifty-one panelists participated in this survey. The survey participants were unanimous in saying that the U.S. economy has entered or will soon enter a period of recession. The forecasters think the recession started in April 2008 and will last 14 months. Thirty-five panelists say their forecasts reflect the influence of a new fiscal stimulus package. The size of the stimulus package is estimated at $211 billion. Out of this amount, the forecasters predict that $69 billion will go toward government consumption and gross investment, $54 billion will go toward transfer payments, and $71 billion will be used for tax cuts. According to the forecasters, the stimulus package will begin to affect real GDP growth in the first quarter of 2009. The panelists think the stimulus package will add 0.6 percentage point to the annual-average over annual-average growth in real GDP in 2009 and 0.4 percentage point in 2010.

Forecasters Project Negative Output Growth in the Next Two Quarters and a Weaker Labor Market

The forecasters predict that the U.S. economy is headed for a couple of rough quarters. They project real GDP declining at an annual rate of 2.9 percent in the fourth quarter and 1.1 percent in the first quarter of 2009. These forecasts represent sharp downward revisions from the forecasts of three months ago, when the forecasters anticipated growth at an annual rate of 0.7 percent in the fourth quarter and 1.6 percent in the first quarter of 2009. The survey participants expect growth to resume by the second quarter of 2009, rising 0.8 percent, and to 0.9 percent in the third quarter and 2.3 percent in the fourth quarter. On a year-over-year basis, growth is expected to average 1.4 percent in 2008 and -0.2 percent in 2009, down from 1.7 percent and 1.5 percent, respectively, in the survey of three months ago.

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 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. For 2009, the forecasters have raised their estimates that growth will be 0.9 percent or lower, compared with their estimates of three months ago. They see a lower chance that growth will be 1.0 percent or more. The forecasters see a 54 percent chance that year-over-year growth in 2009 will be negative.

Increased pessimism about the labor market accompanies the outlook for weaker output growth. The forecasters predict that unemployment will rise from 6.6 percent this quarter to 7.6 percent in the third quarter of 2009. Previously, they forecasted that unemployment would rise from 5.8 percent to 6.0 percent over the same period. Unemployment is expected to average 5.7 percent this year and 7.4 percent in 2009. On the jobs front, the forecasters project job losses in the current quarter at a rate of 222,400 per month. They also see a reduction in jobs of 218,800 per month in the first quarter of 2009 and 108,400 in the second quarter of 2009. They previously projected job losses of 45,400 and 29,800 in the current quarter and the first quarter of 2009 but job gains of 57,900 in the second quarter of 2009. On an annual average basis, jobs are expected to decline 15,200 per month in 2008 and 130,100 per month in 2009.

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

  Real GDP (%) Unemployment Rate (%) Payrolls (000s/month)
  Previous New Previous New Previous New
Quarterly data:
2008:Q4 0.7 -2.9 5.8 6.6 -45.4 -222.4
2009:Q1 1.6 -1.1 6.0 7.0 -29.8 -218.8
Q2 2.1 0.8 6.0 7.4 57.9 -108.4
Q3 2.5 0.9 6.0 7.6 63.1 -7.2
Q4 N.A. 2.3 N.A. 7.7 N.A. 19.8
Annual average data:
2008 1.7 1.4 5.4 5.7 0.0 -15.2
2009 1.5 -0.2 6.0 7.4 1.8 -130.1

Forecasters Reduce Projections for Core Inflation in 2009 and 2010

The outlook for core inflation in 2009 and 2010 is expected to remain steady, but at a level slightly below that forecast in the last survey. Core CPI inflation (fourth-quarter over fourth-quarter) will average 2.0 percent in 2009 and 2010, down from the previous estimate of 2.2 percent over the same period (not shown in the table below). The forecasters also see lower core PCE inflation for 2009 and 2010from 2.0 percent in both years (not shown) in the last survey to about 1.8 percent in this survey.

Turning to the long run, as the table below shows, headline CPI inflation will average 2.5 percent over the next five years, slightly below the forecasters previous estimate of 2.6 percent (not shown). 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 2.2 percent over the next five years, slightly below the forecasters previous estimate of 2.3 percent (not shown). The forecasters estimate for headline PCE inflation over the next 10 years remains at 2.2 percent.

Short-Run and Long-Run Projections for Inflation
 
CPI (%)
PCE Price Index (%)
 
Headline
Core
Headline
Core
Quarterly data:
2008:Q4
-2.6
2.1
-1.5
2.0
2009:Q1
0.8
2.0
1.0
1.6
Q2
1.8
2.0
1.7
1.8
Q3
2.2
2.0
2.0
1.7
Q4
2.2
2.0
2.0
1.8
Fourth-quarter over fourth-quarter data:
2008
3.4
2.4
2.8
2.3
2009
1.7
2.0
1.8
1.7
2010
2.3
2.0
2.2
1.8
Long-run projections:
2008-2012
2.5
N.A.
2.2
N.A.
2008-2017
2.5
N.A.
2.2
N.A.

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 2.9 percent. For 2009, the forecasters have reduced their estimates that core PCE inflation will be 1.5 percent or higher compared with their estimates of three months ago.

Increased Chance of a Downturn

The risk for a quarter of negative growth in real GDP has risen substantially. As the table below shows, the forecasters have revised upward the likelihood of a quarter of negative growth over the next four quarters. For the current quarter, the forecasters predict a 90 percent chance of negative growth, up from 47 percent in the survey of three months ago. The forecasters see a 75 percent chance of negative growth in the first quarter of 2009, up from 33 percent in the last survey.

Risk of a Negative Quarter (%)
 
Previous
New
Quarterly data:
2008:Q4
46.6
90.1
2009:Q1
32.9
74.8
Q2
22.4
49.4
Q3
17.4
32.8
Q4
N.A.
23.6

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; Joan Crary, Stanley Sedo, and Janet Wolfe, RSQE, University of Michigan; 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 and Dean Maki, Barclays Capital; Keith Hembre, First American Funds; Peter Hooper, Deutsche Bank Securities, Inc.; William B. Hummer, Wayne Hummer Investments; Peter Jaquette, PIRA Energy Group; 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; Walter Kemmsies and Daniel Solomon, Moffatt & Nichol; 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, Moodys Investors Service; Macroeconomic Advisers, LLC; Edward F. McKelvey, Goldman Sachs; Jim Meil, Eaton Corporation; Anthony Metz, Pareto Optimal Economics; Ardavan Mobasheri, American International Group; 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; Julian Silk, University of Maryland; 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.

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Fourth Quarter 2008 PDF

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The survey for 2009 Q1 will be released on February 13, 2009.

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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