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Third Quarter 2015 Survey of Professional Forecasters

Forecasters See Slightly Slower Growth as the Unemployment Outlook Holds Steady

The outlook for growth in the U.S. economy over the next four years looks slightly lower from that of three months ago, according to 42 forecasters surveyed by the Federal Reserve Bank of Philadelphia. The panel expects real GDP to grow at an annual rate of 2.7 percent this quarter and 2.8 percent next quarter. On an annual-average over annual-average basis, the forecasters see real GDP growing 2.3 percent in 2015, down from the previous estimate of 2.4 percent. The forecasters predict real GDP will grow 2.8 percent in 2016, 2.6 percent in 2017, and 2.4 percent in 2018. The forecasts for 2017 and 2018 are slightly slower than the previous estimates.

The outlook for the labor market remains nearly unchanged. The forecasters predict the unemployment rate will be an annual average of 5.3 percent in 2015, before falling to 5.0 percent in 2016, 4.8 percent in 2017, and 4.7 percent in 2018. These projections are nearly the same as those of the previous survey.

On the jobs front, the forecasters have revised upward their estimates for job gains in 2015 and 2016. The forecasters’ projections for the annual-average level of nonfarm payroll employment suggest job gains at a monthly rate of 244,200 in 2015, up slightly from the previous estimate of 243,900, and 200,500 in 2016, up from the previous estimate of 180,100. (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:
2015:Q3
3.1
2.7
5.3
5.3
223.3
222.6
2015:Q4
2.9
2.8
5.2
5.1
223.0
220.4
2016:Q1
2.4
2.8
5.1
5.1
177.0
185.1
2016:Q2
3.0
2.8
5.0
5.0
178.3
191.3
2016:Q3
N.A.
2.7
N.A.
4.9
N.A.
189.5
 
Annual data (projections are based on annual-average levels):
2015
2.4
2.3
5.4
5.3
243.9
244.2
2016
2.8
2.8
5.0
5.0
180.1
200.5
2017
2.8
2.6
4.8
4.8
N.A.
N.A.
2018
2.5
2.4
4.8
4.7
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. For 2015, the panelists are more certain now than they were in the previous survey that growth will average between 2.0 and 2.9 percent. The probability estimates for growth in 2016, 2017, and 2018 are about the same now as they were in the previous survey.

The forecasters’ density projections for unemployment, shown below, shed light on uncertainty about the labor market over the next four years. Each chart presents the forecasters’ current estimates of the probability that unemployment will fall into each of 10 ranges. The forecasters are more certain now than they were three months ago that unemployment in 2015 will average between 5.0 and 5.4 percent. The probability estimates for unemployment in 2016, 2017, and 2018 are mostly unchanged from the estimates of three months ago.

Forecasters See Little Change in Near-Term and Long-Term Inflation Outlook

The forecasters expect current-quarter headline CPI inflation to average 2.0 percent, the same as the last survey’s estimate. Similarly, the forecasters made no change to their estimates for current-quarter headline PCE inflation of 1.7 percent.

The forecasters saw little reason to change their projections for headline and core measures of CPI and PCE inflation over the next two years. Measured on a fourth-quarter over fourth-quarter basis, headline CPI inflation is expected to average 0.8 percent in 2015, up slightly from 0.7 percent in the last survey, and 2.1 percent in 2016, unchanged from the previous estimate. Fourth-quarter over fourth-quarter headline PCE inflation is expected to average 0.8 percent in 2015, unchanged from the last survey, and 1.8 percent in 2016, down only 0.1 percentage point from the previous estimate.

Core PCE inflation will average 1.5 percent this year (up from 1.4 percent in the last survey) and 1.8 percent in 2016 (up from 1.7 percent). The forecasters continue to see core PCE inflation averaging 1.9 percent in 2017.

Over the next 10 years, 2015 to 2024, the forecasters expect headline CPI inflation to average 2.15 percent at an annual rate. The corresponding estimate for 10-year annual-average PCE inflation is 2.00 percent. Both estimates are nearly the same as those of the previous survey.

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
2015:Q3
2.0
2.0
1.8
1.9
1.7
1.7
1.5
1.6
2015:Q4
1.9
1.8
1.9
1.9
1.7
1.4
1.6
1.6
2016:Q1
1.9
2.0
1.9
2.0
1.7
1.7
1.7
1.7
2016:Q2
2.1
2.2
2.0
2.0
1.9
1.9
1.7
1.8
2016:Q3
N.A.
2.2
N.A.
2.1
N.A.
1.9
N.A.
1.8
 
Q4/Q4 Annual Averages
2015
0.7
0.8
1.8
2.0
0.8
0.8
1.4
1.5
2016
2.1
2.1
2.0
2.0
1.9
1.8
1.7
1.8
2017
2.3
2.3
2.1
2.1
1.9
1.9
1.9
1.9
 
Long-Term Annual Averages
2015-2019
2.00
2.00
N.A.
N.A.
1.80
1.80
N.A.
N.A.
2015-2024
2.14
2.15
N.A.
N.A.
1.98
2.00
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 the projections for 10-year annual-average CPI and PCE inflation. The top panel shows the little changed estimate for 10-year CPI inflation, at 2.15 percent. The bottom panel highlights the nearly unchanged 10-year forecast for PCE inflation, at 2.00 percent.

The figures below show the probabilities that the forecasters are assigning to the possibility that fourth-quarter over fourth-quarter core PCE inflation in 2015 and 2016 will fall into each of 10 ranges. For both years, the forecasters assign a higher chance than they previously predicted that core PCE inflation will be between 1.0 to 1.9 percent.

Lower Risk of a Negative Quarter

The forecasters see only a small chance of a contraction in real GDP in any of the next five quarters. For the current quarter, they predict a 7.5 percent chance of negative growth, down from 11.0 percent in the survey of three months ago.

Risk of a Negative Quarter (%)
Survey Means
Quarterly data: Previous New
2015: Q3
11.0
7.5
2015: Q4
12.0
10.0
2016: Q1
14.8
13.7
2016: Q2
15.2
13.0
2016: Q3
N.A.
13.6

Natural Rate of Unemployment Estimated at 5.0 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 5.0 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-two percent of the 37 forecasters who answered the question report that they use the natural rate in their forecasts. The lowest estimate is 4.25 percent, and the highest estimate is 5.8 percent.

We adjusted the formula for the “Percentage Who Use the Natural Rate” to exclude those who said they use NAIRU but did not provide an estimate. We then used the new formula to recompute the “Percentage Who Use the Natural Rate” for all surveys since 1996. The reformulation affects the surveys in 1998:Q3, 2005:Q3, and 2011:Q3. The adjusted numbers appear in the table below (with the pre-adjusted numbers in brackets).

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
       45 (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
       50 (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
45
5.00
4.00
6.00
2010:Q3
50
5.78
4.50
6.80
2011:Q3
       42 (44)
6.00
4.75
7.00
2012:Q3
49
6.00
4.75
7.00
2013:Q3
63
6.00
4.75
7.00
2014:Q3
65
5.50
4.50
6.70
2015:Q3
62
5.00
4.25
5.80

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

Lewis Alexander, Nomura Securities; Scott Anderson, Bank of the West (BNP Paribas Group); Robert J. Barbera, Johns Hopkins University Center for Financial Economics; Peter Bernstein, RCF Economic and Financial Consulting, Inc.; 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; Nathaniel Curtis, Navigant Consulting; Gregory Daco, Oxford Economics USA, Inc.;  Rajeev Dhawan, Georgia State University; Michael R. Englund, Action Economics, LLC; Michael Gapen, Barclays Capital; James Glassman, JPMorgan Chase & Co.; Matthew Hall, Daniil Manaenkov, and Ben Meiselman, RSQE, University of Michigan; Jan Hatzius, Goldman Sachs; Keith Hembre, Nuveen Asset Management; Peter Hooper, Deutsche Bank Securities, Inc.; IHS Global Insight; Fred Joutz, Benchmark Forecasts and Research Program on Forecasting, George Washington University; Sam Kahan, Kahan Consulting Ltd. (ACT Research LLC); N. Karp, BBVA Research USA; Walter Kemmsies, Moffatt & Nichol; Jack Kleinhenz, Kleinhenz & Associates, Inc.; Thomas Lam, RHB Securities Singapore Pte. Ltd.; L. Douglas Lee, Economics from Washington; John Lonski, Moody’s Capital Markets Group; Macroeconomic Advisers, LLC; R. Anthony Metz, Pareto Optimal Economics; Michael Moran, Daiwa Capital Markets America; Joel L. Naroff, Naroff Economic Advisors; Mark Nielson, Ph.D., MacroEcon Global Advisors; Luca Noto, Anima Sgr; Brendon Ogmundson, BC Real Estate Association; Tom Porcelli, RBC Capital Markets; Arun Raha, Eaton Corporation; Martin A. Regalia, U.S. Chamber of Commerce; Philip Rothman, East Carolina University; Chris Rupkey, Bank of Tokyo-Mitsubishi UFJ; John Silvia, Wells Fargo; Sean M. Snaith, Ph.D., University of Central Florida; Neal Soss, Credit Suisse; Stephen Stanley, Amherst Pierpont Securities; Charles Steindel, Ramapo College of New Jersey; Susan M. Sterne, Economic Analysis Associates, Inc.; Thomas Kevin Swift, American Chemistry Council; Richard Yamarone, Bloomberg, LP; Mark Zandi, Moody’s Analytics; Ellen Zentner, Morgan Stanley.

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

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Third Quarter 2015 PDF

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The survey for 2015 Q4 will be released on November 13, 2015.

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Tom Stark
Federal Reserve Bank of Philadelphia
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Philadelphia, PA 19106
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