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Third Quarter 2016 Survey of Professional Forecasters

Forecasters See Weaker Outlook for Growth and Employment

The outlook for growth in the U.S. economy over the next three years looks slightly weaker than that of three months ago, according to 40 forecasters surveyed by the Federal Reserve Bank of Philadelphia. The panel expects real GDP to grow at an annual rate of 2.6 percent this quarter and 2.3 percent next quarter. On an annual-average over annual-average basis, the forecasters see real GDP growing 1.5 percent in 2016, down from the previous estimate of 1.7 percent. The forecasters predict real GDP will grow 2.3 percent in 2017, 2.2 percent in 2018, and 2.2 percent in 2019. The forecasts for 2016, 2017, and 2018 are slightly weaker than the previous estimates.

The projections for unemployment remain nearly unchanged from those of the previous survey. The forecasters predict the unemployment rate will be an annual average of 4.8 percent in 2016, before falling to 4.6 percent in 2017, 4.6 percent in 2018, and 4.7 percent in 2019.

On the employment front, the forecasters have revised downward their estimates for job gains in 2016 and 2017. The forecasters’ projections for the annual-average level of nonfarm payroll employment suggest job gains at a monthly rate of 204,600 in 2016, down from the previous estimate of 212,400, and 161,100 in 2017, down from the previous estimate of 178,400. (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:Q3 
2.4
2.6
4.8
4.8
191.8
183.7
2016:Q4
2.3
2.3
4.7
4.7
176.0
169.8
2017:Q1
2.4
2.3
4.7
4.7
181.6
159.9
2017:Q2
2.4
2.3
4.6
4.6
166.5
164.9
2017:Q3
N.A.
2.1
N.A.
4.6
N.A.
159.4
 
Annual data (projections are based on annual-average levels):
2016
1.7
1.5
4.8
4.8
212.4
204.6
2017
2.4
2.3
4.6
4.6
178.4
161.1
2018
2.4
2.2
4.6
4.6
N.A.
N.A.
2019
2.2
2.2
4.6
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 2016, the panelists are more certain now than they were in the previous survey that growth will fall below 2.0 percent. For 2017, 2018, and 2019, the probabilities are about the same now as they were in the survey of three months ago.

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 forecasters are more certain now than they were three months ago that unemployment in 2016 and 2017 will average between 4.0 and 4.9 percent.

Short-Term CPI Inflation Revises Upward, While the Outlook for PCE Inflation Holds Steady

The forecasters see slightly higher headline CPI inflation in 2016 and 2017 compared with their predictions of three months ago. Measured on a fourth-quarter over fourth-quarter basis, headline CPI inflation is expected to average 1.6 percent in 2016, 2.3 percent in 2017, and 2.3 percent in 2018. The projections for headline PCE inflation over the next three years remained 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 2.15 percent at an annual rate, down slightly from their previous estimate of 2.20 percent. The corresponding estimate for 10-year annual-average PCE inflation is 2.00 percent, which is unchanged from the previous estimate.

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:Q3
2.0
2.0
2.0
2.0
1.8
1.5
1.7
1.6
2016:Q4
2.1
2.2
2.1
2.1
1.9
1.9
1.8
1.6
2017:Q1
2.0
2.2
2.2
2.1
1.8
1.9
1.8
1.8
2017:Q2
2.1
2.2
2.2
2.2
1.9
2.0
1.9
1.8
2017:Q3
N.A.
2.3
N.A.
2.2
N.A.
2.0
N.A.
1.9
 
Q4/Q4 Annual Averages
2016
1.5
1.6
2.2
2.2
1.4
1.4
1.8
1.8
2017
2.1
2.3
2.2
2.2
1.9
1.9
1.9
1.9
2018
2.3
2.3
2.2
2.2
2.0
2.0
2.0
2.0
 
Long-Term Annual Averages
2016-2020
2.10
2.10
N.A.
N.A.
1.90
1.90
N.A.
N.A.
2016-2025
2.20
2.15
N.A.
N.A.
2.00
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 lower level of the long-term projection for CPI inflation. The bottom panel depicts an 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. For 2016, the forecasters assign a higher chance than they previously predicted that core PCE inflation will be between 1.5 to 1.9 percent.

Risk of a Negative Quarter Remains Low

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 10.6 percent chance of negative growth, down from 14.6 percent in the survey of three months ago. The forecasters see a lower probability of a negative quarter in 2016 than they estimated three months ago. However, upward revisions characterize the risks in the first half of 2017.

Risk of a Negative Quarter (%)
Survey Means
Quarterly data: Previous New
2016:Q3
14.6
10.6
2016:Q4
15.9
15.6
2017:Q1
17.4
18.5
2017:Q2
18.5
19.0
2017:Q3
N.A.
21.0

Natural Rate of Unemployment Estimated at 4.8 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 4.80 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. Fifty-six percent of the 32 forecasters who answered the question report that they use the natural rate in their forecasts. The lowest estimate is 4.50 percent, and the highest estimate is 5.50 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
45
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
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
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
2016:Q3
56
4.80
4.50
5.50

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; 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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Third Quarter 2016 PDF

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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