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Third Quarter 2009 Survey of Professional Forecasters

Listen to an interview with a research analyst about this quarter's survey. Audio Interview

Forecasters See Improved Prospects for Growth, But A More Sluggish Labor Market

Upward revisions to the rate of growth in real GDP characterize the current outlook for the U.S economy over the next four years, according to 34 forecasters surveyed by the Federal Reserve Bank of Philadelphia. The forecasters project growth at an annual rate of 2.4 percent this quarter, up from their previous estimate of 0.4 percent in the last survey. The forecasters expect steady growth to follow over each of the following four quarters. They have also raised their estimates for growth roughly 0.2 percentage point over each of the next four years. Annual-average over annual-average growth is now seen rising from -2.6 percent this year (-2.8 percent previously) to 3.2 percent in 2012 (3.0 percent previously), as shown in the table below.

 
Real GDP (%)
Unemployment
Rate (%)
Payrolls
(000s/month)
 
Previous
New
Previous
New
Previous
New
Quarterly data:
2009:Q3
0.4
2.4
9.6
9.6
-282.5
-273.1
Q4
1.7
2.2
9.8
9.9
-104.7
-81.0
2010:Q1
2.2
2.5
9.8
9.9
19.9
51.5
Q2
2.9
2.8
9.7
9.8
103.2
61.5
Q3
N.A.
2.6
N.A.
9.6
N.A.
90.8
Annual average data:
2009
-2.8
-2.6
9.1
9.2
-422.6
-415.7
2010
2.0
2.3
9.6
9.6
-13.9
-24.6
2011
2.7
2.9
8.7
8.9
N.A.
N.A.
2012
3.0
3.2
7.7
8.0
N.A.
N.A.

Upward revisions to unemployment and downward revisions to job growth accompany the current outlook for growth. The unemployment rate will average 9.2 percent this year, up from the forecasters' previous projection of 9.1 percent. Unemployment is seen rising to 9.6 percent next year. The forecasters see unemployment falling in 2011 and 2012 — but to levels higher than they predicted previously. Unemployment will average 8.9 percent in 2011, up from 8.7 percent in the last survey, and 8.0 percent in 2012, up from 7.7 percent. Nonfarm payroll employment will fall at a rate of 416,000 jobs per month this year and 25,000 jobs per month in 2010. Previously, the forecasters projected job losses in 2010 at a rate of 14,000 jobs per month.

The charts below provide some information on the degree of uncertainty the forecasters have about their projections for annual-average over annual-average growth in 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 have cut the probability that growth in 2009 will be less than -3.0 percent and raised the probability that growth will fall into the range of -3.0 percent to -2.1 percent. Growth in 2010 is more likely to be greater than the 2.0 percent forecasters projected in the last survey. Looking further into the future, the forecasters think that there is a 60 percent or more chance that growth in 2011 and 2012 will fall into the range of 2.0 to 3.9 percent.

The forecasters' density projections, as shown in the charts below, shed light on the odds of a recovery in the labor market over the next four years. Each chart presents the forecasters' previous and current estimates of the probability that unemployment will fall into each of 10 ranges. The forecasters have raised the estimate of the probability that the annual average unemployment rate will be 9.0 percent or more in 2009 compared with their previous estimate. In both surveys, the probability attached to lower ranges of annual-average unemployment rises as the forecast horizon increases. In 2011, the probability is nearly 60 percent that unemployment will average 8.9 percent or less. That probability rises to over 80 percent in 2012.

Little Change in the Outlook for Inflation Beyond 2009

The forecasters are raising their estimates for headline and core inflation in 2009. On a fourth-quarter over fourth-quarter basis, headline and core CPI inflation will average 0.7 percent and 1.7 percent, respectively, in 2009. These are up from the previous estimates of 0.4 percent and 1.3 percent in the last survey. Similarly, headline and core inflation in the price index for personal consumption expenditures (PCE) will average 0.9 percent and 1.4 percent, respectively, in 2009, marking upward revisions from 0.6 percent and 1.3 percent previously.

There is little change in the inflation outlook at intermediate horizons. Headline CPI inflation will average 1.8 percent in 2010 and 2.2 percent in 2011, both unchanged from the survey of three months ago. Core CPI inflation will average 1.5 percent in 2010 and 2.0 percent in 2011, both up just 0.1 percentage point from the previous survey. Similarly, the forecasters think that headline PCE inflation will average 1.7 percent in 2010 and 2.0 percent in 2011. These projections are unchanged from those of the previous survey. Core PCE inflation will average 1.3 percent in 2010 and 1.7 percent in 2011. These are nearly the same as the projections of the last survey.

Long-run projections are also nearly unchanged. Over the next five years (2009 — 2013), CPI inflation will average 2.15 percent, down from 2.20 percent previously, and PCE inflation will average 2.00 percent, unchanged from the previous survey. Over the next 10 years, the forecasters see CPI inflation averaging 2.50 percent and PCE inflation averaging 2.15 percent. The 10-year CPI projection is unchanged from the last survey. The 10-year PCE projection is down from 2.28 percent previously. The table below summarizes the survey's current projections at various horizons.

Short-Run and Long-Run Projections for Inflation
 
CPI (%)
PCE Price Index (%)
 
Headline
Core
Headline
Core
Quarterly data:
2009:Q3
2.4
1.7
2.0
1.5
Q4
1.6
1.1
1.4
1.0
2010:Q1
1.7
1.5
1.4
1.2
Q2
1.9
1.5
1.8
1.3
Q3
2.0
1.6
1.9
1.3
Fourth-quarter over fourth-quarter data:
2009
0.7
1.7
0.9
1.4
2010
1.8
1.5
1.7
1.3
2011
2.2
2.0
2.0
1.7
Long-run projections:
2009-2013
2.15
N.A.
2.00
N.A.
2009-2018
2.50
N.A.
2.15
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 2009 and 2010 will fall into each of 10 ranges. The forecasters see a nearly 40 percent chance that core PCE inflation will average between 1.0 and 1.4 percent in 2009. In 2010, there is about a 60 percent chance that inflation will fall in the range of 0.5 to 1.9 percent.

Lower Risk of a Downturn in the Current Quarter

The forecasters are reducing the chance of a contraction in real GDP in the current quarter. They currently peg that chance at just under 26 percent for the third quarter, down from 46.5 percent in the last survey. The probabilities of a downturn fall gradually over each of the following four quarters, from 23.7 percent in the fourth quarter to 13.5 percent in the third quarter of 2010, as the table below shows.

Risk of a Negative Quarter (%)
 
Previous
New
Quarterly data:
2009:Q3
46.5
25.9
Q4
26.9
23.7
2010:Q1
17.5
17.8
Q2
14.4
15.9
Q3
N.A.
13.5

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 5.00 percent, the same rate they projected 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 lowest and highest estimates. Sixty-one percent of the 23 forecasters who answered the question report that they use the natural rate in their forecasts. The lowest estimate is 4.00 percent and the highest estimate is 6.00 percent.

Median Estimates of the Natural Rate of Unemployment
Survey Date
Percentage Who Use The Natural Rate
Median Estimate (%)
Low (%)
High (%)
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

Technical Notes

The number of forecasters who participated in this survey (34) is lower than normal. We suspect that the low response rate was caused, in part, by the difficulty many participants experienced in incorporating into their new projections the Bureau of Economic Analysis' (BEA) benchmark revisions to the national income and product accounts (NIPA). Benchmark revisions to the NIPA normally change the values of all historical observations. The BEA released its revision on July 31, 2009, the same day we e-mailed the survey's questionnaire to our participants. Our survey questionnaire and an accompanying "historical data sheet" reported the new recent historical values to the panelists. The data listed as actual in this report reflect the benchmark revisions to the NIPA, as those values were reported by the BEA on July 31.

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

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, GLC Financial Economics; Joan Crary and Stanley Sedo, RSQE, University of Michigan; David Crowe, National Association of Home Builders; 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.; Jeoff Hall, Thomson Financial, IFR; Peter Hooper, Deutsche Bank Securities, Inc.; William B. Hummer, Wayne Hummer Investments; IHS Global Insight; Fred Joutz, Benchmark Forecasts and Research Program on Forecasting, George Washington University; Kurt Karl, Swiss Re; Nathaniel Karp, BBVA-Compass; Walter Kemmsies and Daniel Solomon, Moffatt & Nichol; Jack Kleinhenz, Kleinhenz & Associates, Inc.; Thomas Lam, UOB Group; L. Douglas Lee, Economics from Washington; Mickey D. Levy, Bank of America; John Lonski, Moody's Investors Service; Macroeconomic Advisers, LLC; Dean Maki, Barclays Capital; Edward F. McKelvey, Goldman Sachs; Jim Meil, Eaton Corporation; Merrill Lynch; Anthony Metz, Pareto Optimal Economics; Ardavan Mobasheri and Danielle Ferry, 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, Prima Sgr; Martin A. Regalia, U.S. Chamber of Commerce; David Resler, Nomura Securities International, Inc.; John Silvia, Wells Fargo; 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., CGS Economic Consulting; 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.

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View Complete WRiteup

A complete writeup of this survey, including all tables, is available in PDF format.

Third Quarter 2009 PDF

View panelists' responses to special questions on an extended horizon for real GDP, unemployment, and 3-month and 10-year Treasuries. Excel spreadsheet

Next Survey Release

The survey for 2009 Q4 will be released on November 16, 2009.

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Contact Us

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