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Second Quarter 2011 Survey of Professional Forecasters

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

Forecasters Predict Slower Growth over the Next Four Years

Growth in the U.S. economy looks a little slower now than it did three months ago, according to 44 forecasters surveyed by the Federal Reserve Bank of Philadelphia. Our panelists expect real GDP to grow at an annual rate of 3.2 percent this quarter, down from the previous estimate of 3.5 percent. On an annual-average over annual-average basis, the forecasters also predict slower real GDP growth over the next four years. The forecasters see real GDP growing 2.7 percent in 2011, down from their prediction of 3.2 percent in the last survey. The forecasters predict real GDP will grow 3.0 percent in 2012, 2.8 percent in 2013, and 3.3 percent in 2014, each somewhat lower than their respective predictions in the last survey.

The outlook for the labor market is mixed. The forecasters see a brighter picture for the unemployment rate over the next four years. Unemployment is projected to be an annual average of 8.7 percent in 2011, 8.1 percent in 2012, 7.5 percent in 2013, and 7.0 percent in 2014. On the jobs front, the forecasters see slower growth in jobs in 2011 and 2012 than they predicted in the last survey. The forecasters see nonfarm payroll employment growing at a rate of 191,100 jobs per month this quarter and 194,500 jobs per month next quarter. The forecasters' projections for the annual-average level of nonfarm payroll employment suggest job gains at a monthly rate of 130,400 in 2011 and 194,800 in 2012, 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:
2011:Q2
3.5
3.2
9.2
8.9
188.3
191.1
2011:Q3
3.1
3.4
9.0
8.7
201.1
194.5
2011:Q4
3.4
3.5
8.8
8.5
213.1
173.9
2012:Q1
3.1
2.9
8.7
8.4
201.4
219.4
2012:Q2
N.A.
2.5
N.A.
8.2
N.A.
182.0
Annual data (projections are based on annual-average levels):
2011
3.2
2.7
9.1
8.7
134.9
130.4
2012
3.1
3.0
8.5
8.1
226.1
194.8
2013
3.0
2.8
7.8
7.5
N.A.
N.A.
2014
3.4
3.3
7.3
7.0
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 revised downward their estimate of the probability that growth will fall into the range of 3.0 to 4.9 percent in 2011, 2012, 2013, and 2014.

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 reduced the estimate of the probability that the annual-average unemployment rate will be higher than 8.5 percent in 2012, 2013, and 2014 compared with their previous estimates.

Upward Revisions to the Outlook for Inflation

The forecasters predict higher inflation, both in the short run and over the long run, for the survey's four measures of inflation. The forecasters expect current-quarter headline CPI inflation to average 3.5 percent, up from the last survey's estimate of 1.3 percent. The forecasters predict a higher current-quarter headline PCE inflation of 2.7 percent, up from the last survey's estimate of 1.3 percent.

Measured on a fourth-quarter over fourth-quarter basis, headline CPI inflation is expected to average 3.1 percent in 2011, 2.2 percent in 2012, and 2.3 percent in 2013, higher than the forecasts of 1.7 percent, 2.0 percent, and 2.1 percent, respectively, in the last survey.

Over the next 10 years, 2011 to 2020, the forecasters expect headline CPI inflation to average 2.4 percent at an annual rate. This estimate is up slightly from 2.3 percent in the last survey.

Short-Run and Long-Run Projections for Inflation (Annualized Percentage Points)
 
Headline CPI
Core CPI
Headline PCE
Core PCE
Previous
Current
Previous
Current
Previous
Current
Previous
Current
Quarterly
2011:Q2
1.3
3.5
1.2
1.7
1.3
2.7
1.3
1.5
2011:Q3
1.8
2.2
1.3
1.6
1.5
2.2
1.3
1.4
2011:Q4
1.8
2.0
1.4
1.6
1.5
1.8
1.4
1.5
2012:Q1
2.0
2.3
1.6
1.9
1.8
1.7
1.5
1.6
2012:Q2
N.A.
2.1
N.A.
1.9
N.A.
1.8
N.A.
1.6
Q4/Q4 Annual Averages
2011
1.7
3.1
1.3
1.6
1.6
2.6
1.3
1.5
2012
2.0
2.2
1.7
1.9
1.8
1.9
1.6
1.6
2013
2.1
2.3
1.9
2.0
1.9
2.1
1.7
1.8
Long-Term Annual Averages
2011-2015
2.10
2.35
N.A.
N.A.
1.91
2.20
N.A.
N.A.
2011-2020
2.30
2.40
N.A.
N.A.
2.10
2.27
N.A.
N.A.

The charts below show the median projections (the red line) and the associated interquartile ranges (the gray area around the red line) for 10-year annual-average CPI and PCE inflation. Both median projections have risen in the current survey.

The figures below show the probabilities that the forecasters are assigning to the possibility that fourth-quarter over fourth-quarter core PCE inflation in 2011 and 2012 will fall into each of 10 ranges. For both years, the forecasters assign a higher chance than previously that core PCE inflation will be more than 1.5 percent.

The Risk of a Negative Quarter Remains Low

The forecasters continue to see a small chance of a contraction in real GDP in any of the next four quarters. For the current quarter, they predict a 7.0 percent chance of negative growth, little changed from the survey of three months ago.

Risk of a Negative Quarter (%)
 
Previous
New
Quarterly data:
2011: Q2
7.1
7.0
2011: Q3
9.3
8.5
2011: Q4
10.7
10.2
2012: Q1
11.4
12.2
2012: Q2
N.A.
12.1

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

Robert J. Barbera, Mount Lucas 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; Robert C. Fry, Jr., DuPont; Stephen Gallagher, Societe Generale; Timothy Gill, NEMA; James Glassman, JPMorgan Chase & Co.; Ethan Harris, Bank of America-Merrill Lynch; Keith Hembre, Nuveen Asset Management; Peter Hooper, Deutsche Bank Securities, Inc.; 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, 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 Capital Markets Group; Macroeconomic Advisers, LLC; Dean Maki, Barclays Capital; Jim Meil, Eaton Corporation; Anthony Metz, Pareto Optimal Economics; Ardavan Mobasheri, AIG Global Economic Research; Michael Moran, Daiwa Capital Markets 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.; Philip Rothman, East Carolina University; 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, Pierpont Securities; Charles Steindel, New Jersey Department of the Treasury; Susan M. Sterne, Economic Analysis Associates, Inc.; Thomas Kevin Swift, American Chemistry Council; Andrew Tilton and Edward F. McKelvey, Goldman Sachs; Jay N. Woodworth, Woodworth Holdings, Ltd.; Mark Zandi, Moody's Analytics; 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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Second Quarter 2011 PDF

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The survey for 2011 Q3 will be released on August 12, 2011.

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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