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Third Quarter 2012 Survey of Professional Forecasters

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

Forecasters Revise Downward Their Estimates for Growth

The outlook for growth in the U.S. economy looks weaker now than it did three months ago, according to 48 forecasters surveyed by the Federal Reserve Bank of Philadelphia. The forecasters expect real GDP to grow at an annual rate of 1.6 percent this quarter, down from the previous estimate of 2.5 percent. Over the next three quarters, they expect GDP growth to average 2.1 percent, down from the previous average of 2.6 percent. On an annual-average over annual-average basis, the forecasters also predict slower real output growth over the next four years. The forecasters see real GDP growing 2.2 percent in 2012, down from their prediction of 2.3 percent in the survey of three months ago. The forecasters predict real GDP will grow 2.1 percent in 2013, 2.7 percent in 2014, and 3.1 percent in 2015, each somewhat lower than their respective predictions in the last survey.

Projections for weaker conditions in the labor market accompany the outlook for real output. Unemployment is projected to be an annual average of 8.2 percent in 2012, before falling to 7.9 percent in 2013, 7.3 percent in 2014, and 7.0 percent in 2015. The estimates for unemployment are slightly higher than the projections in the last survey.

On the employment front, the forecasters have revised downward their estimates of the growth in jobs over the next four quarters. The forecasters see nonfarm payroll employment growing at a rate of 125,000 jobs per month this quarter and 135,300 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 154,600 in 2012 and 143,200 in 2013, 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.)

Median Forecasts for Selected Variables in the Current and Previous Surveys
 
Real GDP (%)
Unemployment Rate (%)
Payrolls (000s/month)
 
Previous
New
Previous
New
Previous
New
Quarterly data
2012:Q3
2.5
1.6
8.0
8.2
170.0
125.0
2012:Q4
2.6
2.2
7.9
8.1
172.6
135.3
2013:Q1
2.6
1.8
7.9
8.0
170.3
151.7
2013:Q2
2.7
2.3
7.7
7.9
185.8
139.7
2013:Q3
N.A.
2.5
N.A.
7.8
N.A.
149.0
Annual data (projections are based on annual-average levels)
2012
2.3
2.2
8.1
8.2
171.9
154.6
2013
2.7
2.1
7.7
7.9
175.7
143.2
2014
3.1
2.7
7.2
7.3
N.A.
N.A.
2015
3.4
3.1
6.6
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 shifted the distributions of density to the left for 2012, 2013, 2014, and 2015, indicating their expectations of lower real GDP growth compared with their previous estimates.

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 shifted the distributions of density to the right for 2013, 2014, and 2015, indicating their expectations of higher unemployment rates over the next three years compared with their previous estimates.

Mixed Results on Expectations for Long-Term Inflation

The forecasters expect current-quarter headline CPI inflation to average 1.5 percent, down from the last survey’s estimate of 2.3 percent. They predict current-quarter headline PCE inflation of 1.5 percent, 0.4 percentage point lower than their previous estimate.

Measured on a fourth-quarter over fourth-quarter basis, headline CPI inflation is expected to average 1.8 percent in 2012, down from 2.3 percent in the last survey; 2.2 percent in 2013, up from 2.1 percent; and 2.3 percent in 2014, down from 2.5 percent. Forecasters expect fourth-quarter over fourth-quarter headline PCE inflation to average 1.7 percent in 2012, down from 2.1 percent in the last survey; 2.0 percent in 2013, unchanged from the previous estimate; and 2.2 percent in 2014, also unchanged from the previous estimate.

Revisions to the projections for long-term inflation depend on the measure. Over the next 10 years, 2012 to 2021, the forecasters expect headline CPI inflation to average 2.35 percent at an annual rate, lower than the estimate of 2.48 percent from the survey of three months ago. The corresponding estimate for 10-year annual-average headline PCE inflation remained unchanged at 2.20 percent.

Median 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
2012:Q3
2.3
1.5
2.0
2.2
1.9
1.5
1.7
1.9
2012:Q4
2.1
2.0
2.0
2.0
2.0
2.0
1.7
1.8
2013:Q1
2.2
2.1
2.0
2.0
2.2
2.0
1.9
1.9
2013:Q2
2.2
2.1
2.1
2.0
2.0
2.0
1.9
2.0
2013:Q3
N.A.
2.2
N.A.
2.1
N.A.
2.1
N.A.
2.0
Q4/Q4 Annual Averages
2012
2.3
1.8
2.0
2.2
2.1
1.7
1.8
1.9
2013
2.1
2.2
2.0
2.0
2.0
2.0
1.9
2.0
2014
2.5
2.3
2.2
2.2
2.2
2.2
2.0
2.0
Long-Term Annual Averages
2012-2016
2.35
2.20
N.A.
N.A.
2.04
2.00
N.A.
N.A.
2012-2021
2.48
2.35
N.A.
N.A.
2.20
2.20
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. The top panel shows the downward revision for CPI inflation, from 2.48 percent to 2.35 percent. The bottom panel highlights the unchanged 10-year forecast for PCE inflation.

The figures below show the probabilities the forecasters are assigning to the possibility that fourth-quarter over fourth-quarter core PCE inflation in 2012 and 2013 will fall into each of 10 ranges. The charts show that the estimates of uncertainty about core PCE inflation in 2012 and 2013 remained mostly unchanged from the previous survey.

Higher Risk of a Negative Quarter

The forecasters have revised upward the chance of a contraction in real GDP in any of the next four quarters. For the current quarter, they predict a 13.8 percent chance of negative growth, up from 12.2 percent in the survey of three months ago. As the table below shows, the panelists have also made upward revisions to their forecasts for the following three quarters.

Risk of a Negative Quarter (%)
Quarterly data
Previous
New
2012: Q3
12.2
13.8
2012: Q4
14.5
17.0
2013: Q1
17.3
21.2
2013: Q2
17.8
21.0
2013: Q3
N.A.
19.1

Natural Rate of Unemployment Estimated at 6.0 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 6.0 percent. The table below shows, for each third-quarter survey since 1996, 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-three percent of the 35 forecasters who answered the question report that they use the natural rate in their forecasts. The lowest estimate is 4.75 percent and the highest estimate is 7.0 percent.

Median Estimates of the Natural Rate of Unemployment
Survey Date
Percentage Who Use The Natural Rate
Median Estimate (%)
Low (%)
High (%)
1996:Q3
62
5.65
5.00
6.00
1997:Q3
59
5.25
4.50
5.88
1998:Q3
47
5.30
4.50
5.80
1999:Q3
43
5.00
4.13
5.60
2000:Q3
48
4.50
4.00
5.00
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
2010:Q3
64
5.78
4.50
6.80
2011:Q3
41
6.00
4.75
7.00
2012:Q3
63
6.00
4.75
7.00

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

Scott Anderson, Bank of the West (BNP Paribas Group); Robert J. Barbera, Mount Lucas Management; Christine Chmura, Ph.D. and Xiaobing Shuai, Ph.D., Chmura Economics & Analytics; Gary Ciminero, CFA, GLC Financial Economics; Julia Coronado, BNP Paribas; David Crowe, National Association of Home Builders; Rajeev Dhawan, Georgia State University; Shawn Dubravac, Consumer Electronics Association; Michael R. Englund, Action Economics, LLC; 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.; 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 and Arun Raha, 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, Anima Sgr; Brendon Ogmundson, BC Real Estate Association; Martin A. Regalia, U.S. Chamber of Commerce; David Resler, Nomura Securities International, Inc.; Philip Rothman, East Carolina University; Chris Rupkey, Bank of Tokyo-Mitsubishi UFJ; John Silvia, Wells Fargo; Allen Sinai, Decision Economics, Inc; Tara M. Sinclair, Research Program on Forecasting, George Washington University; David Sloan, Thomson Reuters; 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, Goldman Sachs; Lea Tyler, Oxford Economics USA, Inc.; Jay N. Woodworth, Woodworth Holdings, Ltd.; Richard Yamarone, Bloomberg, LP; Mark Zandi, Moody’s Analytics

This is a partial list of participants. We also thank those who wish to remain anonymous.

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Third Quarter 2012 PDF

Next Survey Release

The survey for 2012 Q4 will be released on November 9, 2012.

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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