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Second Quarter 2016 Survey of Professional Forecasters

Weaker Outlook for Growth, but Stronger Outlook for Employment

The economy looks slightly weaker now than it did three months ago, according to 42 forecasters surveyed by the Federal Reserve Bank of Philadelphia. The forecasters predict real GDP will grow at an annual rate of 2.1 percent this quarter and 2.4 percent next quarter. On an annual-average over annual-average basis, real GDP will grow 1.7 percent in 2016, down 0.4 percentage point from the previous estimate of 2.1 percent. For 2017, real GDP is estimated to grow 2.4 percent, unchanged from the previous survey. The forecasters predict real GDP will grow 2.4 percent in 2018 and 2.2 percent in 2019, down 0.3 percentage point and 0.1 percentage point, respectively, from the previous survey’s estimates.

The outlook for unemployment remains mostly unchanged from the previous survey. The forecasters predict that the unemployment rate will average 4.8 percent in 2016, before falling to 4.6 percent in 2017, 2018, and 2019.

The forecasters see some improvement on the employment front. They have revised their estimates upward for job gains in 2016 and 2017. The forecasters see nonfarm payroll employment growing at a rate of 189,800 jobs per month this quarter, 191,800 jobs per month next quarter, 176,000 jobs per month in the fourth quarter of 2016, 181,600 jobs per month in the first quarter of 2017, and 166,500 jobs per month in the second quarter of 2017. The forecasters’ projections for the annual-average level of nonfarm payroll employment suggest job gains at a monthly rate of 212,400 in 2016 and 178,400 in 2017, 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:
2016:Q2  
2.5
2.1
4.8
4.9
183.2
189.8
2016:Q3
2.3
2.4
4.7
4.8
195.9
191.8
2016:Q4
2.5
2.3
4.6
4.7
152.6
176.0
2017:Q1
2.4
2.4
4.6
4.7
177.1
181.6
2017:Q2
N.A.
2.4
N.A.
4.6
N.A.
166.5
 
Annual data (projections are based on annual-average levels):
2016
2.1
1.7
4.8
4.8
204.3
212.4
2017
2.4
2.4
4.6
4.6
165.0
178.4
2018
2.7
2.4
4.6
4.6
N.A.
N.A.
2019
2.3
2.2
4.7
4.6
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 chart for 2016 shows the forecasters have revised upward their estimates of the probability that real GDP growth will fall below 2.0 percent in 2016.

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 charts show the panelists have slightly raised their density estimates of unemployment outcomes over the next four years in the 4.0 percent to 5.4 percent range. 

Little Change in the Headline Inflation Outlook

The forecasters see little reason to change their views on headline CPI inflation in 2016, 2017, and 2018 compared with their predictions of three months ago. Measured on a fourth-quarter over fourth-quarter basis, headline CPI inflation is expected to average 1.5 percent in 2016, 2.1 percent in 2017, and 2.3 percent in 2018. The projections for headline PCE inflation over the next three years also remained mostly unchanged from the survey of three months ago. Measured on a fourth-quarter over fourth-quarter basis, headline PCE inflation is expected to average 1.4 percent in 2016, 1.9 percent in 2017, and 2.0 percent in 2018.

Over the next 10 years, 2016 to 2025, the forecasters expect headline CPI inflation to average 2.20 percent at an annual rate, up marginally from their previous estimate of 2.12 percent. The corresponding estimate for 10-year annual-average PCE inflation is 2.00 percent, nearly unchanged from their previous estimate of 1.97 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
2016:Q2
1.6
1.9
2.0
2.0
1.6
1.6
1.5
1.5
2016:Q3
2.1
2.0
2.0
2.0
1.8
1.8
1.7
1.7
2016:Q4
2.1
2.1
2.0
2.1
1.8
1.9
1.7
1.8
2017:Q1
2.1
2.0
2.0
2.2
1.8
1.8
1.7
1.8
2017:Q2
N.A.
2.1
N.A.
2.2
N.A.
1.9
N.A.
1.9
 
Q4/Q4 Annual Averages
2016
1.5
1.5
2.0
2.2
1.3
1.4
1.6
1.8
2017
2.2
2.1
2.1
2.2
1.9
1.9
1.8
1.9
2018
2.3
2.3
2.1
2.2
2.0
2.0
1.9
2.0
 
Long-Term Annual Averages
2016-2020
2.08
2.10
N.A.
N.A.
1.88
1.90
N.A.
N.A.
2016-2025
2.12
2.20
N.A.
N.A.
1.97
2.00
N.A.
N.A.

The charts below show the median projections (red line) and the associated interquartile ranges (gray areas around the red line) for the projections for 10-year annual-average CPI and PCE inflation. The top panel highlights a marginally increased level of the long-term projection for CPI inflation. The bottom panel depicts a nearly unchanged 10-year forecast for PCE inflation.

The figures below show the probabilities that the forecasters are assigning to the possibility that fourth-quarter over fourth-quarter core PCE inflation in 2016 and 2017 will fall into each of 10 ranges. The charts show the panelists are raising their density estimates slightly over the next two years at the higher levels of inflation outcomes.

Lower Risk of a Negative Quarter

For the second quarter of 2016, the forecasters predict a 12.5 percent chance of negative growth in real GDP, slightly lower than the previous prediction of 14.7 percent. As the table below shows, the forecasters have also reduced their risk estimates for a downturn in the following quarters, compared with their previous estimates.

Risk of a Negative Quarter (%)
Survey Means
Quarterly data: Previous New
2016:Q2
14.7
12.5
2016:Q3
15.8
14.6
2016:Q4
17.0
15.9
2017:Q1
18.8
17.4
2017:Q2
N.A.
18.5

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; Nathaniel Curtis, Navigant Consulting; Gregory Daco, Oxford Economics USA, Inc.;  Rajeev Dhawan, Georgia State University;  Robert Dietz, National Association of Home Builders; Gabriel Ehrlich, Matthew Hall, Daniil Manaenkov, and Ben Meiselman, RSQE, University of Michigan; Michael R. Englund, Action Economics, LLC; Michael Gapen, Barclays Capital; James Glassman, JPMorgan Chase & Co.; 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 and Maira Trimble, 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; Allen Sinai, Decision Economics, Inc.; Sean M. Snaith, Ph.D., University of Central Florida; Constantine G. Soras, Ph.D., CGS Economic Consulting; Stephen Stanley, Amherst Pierpont Securities; Charles Steindel, Ramapo College of New Jersey; Susan M. Sterne, Economic Analysis Associates, Inc.; James Sweeney, Credit Suisse; 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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Second Quarter 2016 PDF

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The survey for 2016 Q3 will be released on August 12, 2016.

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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