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First Quarter 2010 Survey of Professional Forecasters

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

Forecasters Expect Continued Growth

The U.S. economy will grow at an annual rate of 2.7 percent over each of the next five quarters, according to 42 forecasters surveyed by the Federal Reserve Bank of Philadelphia. The forecasters see stronger growth over the next three quarters than they projected in the survey of three months ago, but some of that upward revision will come at the expense of slower growth at year's end. On an annual-average over annual-average basis, forecasters see real GDP growing 3.0 percent in 2010, up from their prediction of 2.4 percent in the last survey. The forecasters predict real GDP will grow 2.9 percent in 2011, 3.4 percent in 2012, and 3.1 percent in 2013.

The labor market in the near term looks a bit stronger now than it did three months ago. Unemployment is now projected to be an annual average of 9.8 percent in 2010, before falling to 9.2 percent in 2011, 8.3 percent in 2012, and 7.3 percent in 2013. On the jobs front, upward revisions for the growth in jobs over the next two quarters of 2010 are to be followed by downward revisions over the second half of the year. The forecasters see nonfarm payroll employment growing at a rate of 600 jobs per month this quarter and 117,600 jobs per month next quarter. Both estimates mark upward revisions from the previous survey. Over the second half of 2010, jobs will grow at an average rate of 96,000 per month. The forecasters' projections for the annual average level of nonfarm payroll employment suggest job losses at a monthly rate of 59,000 in 2010. Job gains in 2011 are seen averaging 142,000 per month, as the table below shows. (These annual-average estimates are computed as the year-to-year change in the annual-average level of nonfarm payroll employment, converted to a monthly rate.)

 
Real GDP (%)
Unemployment
Rate (%)
Payrolls
(000s/month)
 
Previous
New
Previous
New
Previous
New
Quarterly data:
2010:Q1
2.3
2.7
10.2
9.9
-35.0
0.6
Q2
2.4
2.7
10.1
9.9
57.6
117.6
Q3
2.6
2.7
10.0
9.8
158.6
69.3
Q4
2.9
2.7
9.8
9.7
142.2
122.2
2011:Q1
N.A.
2.7
N.A.
9.4
N.A.
143.4
Annual average data:
2010
2.4
3.0
10.0
9.8
-69.8
-59.0
2011
3.1
2.9
9.2
9.2
N.A.
141.8
2012
3.3
3.4
8.3
8.3
N.A.
N.A.
2013
N.A.
3.1
N.A.
7.3
N.A
N.A.

The charts below provide some insight into the degree of uncertainty the forecasters have about their projections for the rate of growth in the annual-average level of 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 raised their estimate of the probability that growth will fall into the range of 2.0 percent and above in 2010, 2011, and 2012.

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 in the range of 9.0 percent to 9.4 percent in 2010, 2011, and 2012 compared with their previous estimates. The panelists have also raised their estimates of the probability that unemployment will be in the range of 9.5 percent to 9.9 percent in 2010 and 2011 compared with their previous estimates. For 2010 to 2012, the probability that unemployment will fall into the two highest ranges of outcomes is lower now than it was previously.

Upward Revision to the Outlook for Long-Term Headline CPI Inflation

The current outlook for the headline and core measures of CPI and PCE inflation during the next two years is about the same as it was in the last survey. Over the next 10 years, 2010 to 2019, the forecasters expect headline CPI inflation to average 2.39 percent at an annual rate. This estimate is up from the last survey, when the forecasters thought headline CPI inflation over the 10-year period from 2009 to 2018 would average 2.26 percent. The 10-year outlook for PCE inflation is unchanged.

Short-Run and Long-Run Projections for Inflation (Annualized Percentage Points)
Full Sample Results, Medians
 
Headline CPI
Core CPI
Headline PCE
Core PCE
Previous
Current
Previous
Current
Previous
Current
Previous
Current
Quarterly
2010:Q1
1.5
2.1
1.2
1.3
1.5
1.5
1.0
1.2
Q2
1.5
1.4
1.4
1.4
1.2
1.2
1.2
1.3
Q3
1.8
1.8
1.5
1.5
1.8
1.7
1.4
1.3
Q4
1.8
1.9
1.5
1.5
1.8
1.8
1.4
1.4
2011:Q1
N.A.
2.1
N.A.
1.6
N.A.
1.8
N.A.
1.5
Q4/Q4 Annual Averages
2010
1.7
1.7
1.4
1.4
1.3
1.4
1.3
1.3
2011
2.1
2.1
1.8
1.7
1.8
1.8
1.5
1.5
2012
N.A.
2.3
N.A.
2.0
N.A.
2.0
N.A.
1.9
Long-Term Annual Averages
2009-2013
1.89
N.A.
N.A.
N.A.
1.83
N.A.
N.A.
N.A.
2010-2014
N.A.
2.20
N.A.
N.A.
N.A.
1.80
N.A.
N.A.
2009-2018
2.26
N.A.
N.A.
N.A.
2.10
N.A.
N.A.
N.A.
2010-2019
N.A.
2.39
N.A.
N.A.
N.A.
2.10
N.A.
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 2010 and 2011 will fall into each of 10 ranges. The forecasters see a higher chance than they previously assigned that core PCE inflation in 2010 will fall into the range of 1.5 percent to 2.4 percent and a lower chance that inflation will be 2.5 percent and above. For 2011, the forecasters are assigning a probability of 25 percent to inflation falling into the range of 1.5 percent to 1.9 percent.

Forecasters State Their Views on House Prices

In this survey, a special question asked panelists to provide their forecasts for fourth-quarter over fourth-quarter growth in house prices, as measured by a number of alternative indices. The panelists were allowed to choose from a provided list of indices or to write in their own index. For each index of their choosing, the panelists provided forecasts of growth in 2010 and 2011.

Twenty panelists answered the special question. Some panelists provided projections for more than one index. The table below provides a summary of the forecasters' responses. For some indices, the number of responses (N) is very small. The median estimates for the seven house-price indices listed on the table below range from -1.9 percent to 3.0 percent in 2010 and 1.6 percent to 3.4 percent in 2011.

Projections for the Growth in Various Indices of House Prices Q4/Q4, Percentage Points
Index
2010
(Q4/Q4 Percent Change)
2011
(Q4/Q4 Percent Change)
N
Mean
Median
N
Mean
Median
S&P/Case-Shiller: U.S. National
3
-3.9
-1.9
3
3.9
3.0
S&P/Case-Shiller: Composite 10
4
3.3
2.6
4
2.4
3.0
S&P/Case-Shiller: Composite 20
7
-0.5
1.3
6
2.9
3.0
FHFA: U.S. Total
8
-1.1
1.2
8
2.3
2.2
FHFA: Purchase Only
10
0.6
1.1
10
1.6
1.6
LoanPerformance: National, incl Distressed Sales (Single Family Combined)
3
3.2
3.0
3
2.3
3.0
NAR Median: Total Existing
4
-1.7
1.6
4
3.7
3.4

Forecasters See a Lower Risk of a Downturn

The forecasters are reducing the chance of a contraction in real GDP in any of the next three quarters. They have cut their estimate of the risk of a downturn this quarter to 9.9 percent compared with 15.9 percent previously. As the table below shows, the panelists have also made downward revisions to their forecasts for the following two quarters, although the Q2 and Q3 revisions are smaller than those for Q1.

Risk of a Negative Quarter (%)
 
Previous
New
Quarterly data:
2010:Q1
15.9
9.9
Q2
14.0
11.6
Q3
13.8
13.2
Q4
13.4
14.0
2011:Q1
N.A.
14.8

Upward 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. As the table below shows, the forecasters have increased their long-run estimates for the annual-average rate of growth in real GDP and productivity. Currently, the forecasters expect real GDP to grow 2.70 percent per year over the next 10 years, up from 2.56 percent in the survey of 2009 Q1. Similarly, productivity growth is now expected to average 2.0 percent, up from 1.9 percent. Upward revisions to the return on financial assets, with the exception of three-month Treasury bills, accompany the current outlook. The forecasters see the S&P 500 returning 7.00 percent per year, up from 6.50 percent, and 10-year Treasuries returning 4.95 percent, up from 4.85 percent. The forecasters continue to expect that three-month Treasury bills will return 3.0 percent per year over the next 10 years.

Long-Term (10-year) Forecasts (%)
 
First Quarter 2009
Current Survey
Real GDP Growth
2.56
2.70
Productivity Growth
1.90
2.00
Stock Returns (S&P 500)
6.50
7.00
Bond Returns (10-year)
4.85
4.95
Bill Returns (3-month)
3.00
3.00

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; David Crowe, National Association of Home Builders; Rajeev Dhawan, Georgia State University; Shawn Dubravac, Consumer Electronics Association; Michael R. Englund, Action Economics, LLC; Gerard F. Fuda, Independent Economist; Stephen Gallagher, Societe Generale; Timothy Gill, NEMA; James Glassman, JP Morgan Chase & Co.; Ethan Harris, Bank of America Merrill Lynch; William B. Hummer, Wayne Hummer Investments; IHS Global Insight; Peter Jaquette, PIRA Energy Group; Fred Joutz, Benchmark Forecasts and Research Program on Forecasting, George Washington University; Kurt Karl, Swiss Re; N. Karp, BBVA Compass; Walter Kemmsies and Daniel Solomon, Moffatt & Nichol; Jack Kleinhenz, Kleinhenz & Associates, Inc.; Thomas Lam, OSK Group/DMG & Partners; L. Douglas Lee, Economics from Washington; Allan R. Leslie, Economic Consultant; 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 and Danielle Ferry, American International Group; Michael Moran, Daiwa Securities America; Joel L. Naroff, Naroff Economic Advisors; Herbert E. Neil, Financial and Economic Strategies Corp.; 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.; Merrill Lynch; John Silvia, Wells Fargo; Allen Sinai, Decision Economics, Inc; Sean M. Snaith, Ph.D., University of Central Florida; Constantine G. Soras, Ph.D., CGS Economic Consulting; Neal Soss, Credit Suisse; Stephen Stanley, RBS; Susan M. Sterne, Economic Analysis Associates, Inc.; 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.

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View Complete WRiteup

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

First Quarter 2010 PDF

View panelists' responses to special questions on growth in house prices. Excel spreadsheet

Next Survey Release

The survey for 2010 Q2 will be released on May 14, 2010.

For more up-to-date information, please view the SPF release schedule.

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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