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First Quarter 2018 Survey of Professional Forecasters

Stronger Output Growth and Brighter Labor Market

The U.S. economy looks stronger now than it did three months ago, according to 36 forecasters surveyed by the Federal Reserve Bank of Philadelphia. The forecasters predict real GDP will grow at an annual rate of 3.0 percent this quarter and 2.9 percent next quarter. On an annual-average over annual-average basis, the forecasters predict real GDP growing 2.8 percent in 2018, 2.5 percent in 2019, and 2.0 percent in 2020. The forecasts for 2018, 2019, and 2020 are higher than the estimates of three months ago. For 2021, real GDP is estimated to grow 1.7 percent.

A brighter outlook for the labor market accompanies the outlook for stronger output growth. The forecasters predict the unemployment rate will average 4.0 percent in 2018, 3.8 percent in 2019, 3.9 percent in 2020, and 4.0 percent in 2021. The projections for 2018, 2019, and 2020 are below those of the last survey, indicating a brighter outlook for unemployment.

The panelists also predict an improvement in employment for 2018. The projections for the annual-average level of nonfarm payroll employment suggest job gains at a monthly rate of 175,100 in 2018, up from the previous estimate of 163,400. (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:
2018:Q1  
2.4
3.0
4.1
4.0
164.9
183.3
2018:Q2
2.4
2.9
4.1
4.0
167.0
171.1
2018:Q3
2.1
2.8
4.1
3.9
157.1
168.7
2018:Q4
2.3
2.5
4.0
3.8
155.6
151.8
2019:Q1
N.A.
2.4
N.A.
3.8
N.A.
172.9
 
Annual data (projections are based on annual-average levels):
2018
2.5
2.8
4.1
4.0
163.4
175.1
2019
2.1
2.5
4.0
3.8
N.A.
150.3
2020
1.9
2.0
4.1
3.9
N.A.
N.A.
2021
N.A.
1.7
N.A.
4.0
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 (except the one for 2021) presents the forecasters’ previous and current estimates of the probability that growth will fall into each of 11 ranges. The charts show the forecasters have revised upward their estimates of the probability that real GDP growth will be between 2.0 percent and 2.9 percent in 2018, 2019, and 2020.

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 are raising their density estimates substantially for an unemployment rate below 4.0 percent over the next three years.

Higher Current Quarter Headline Inflation

The forecasters expect current-quarter headline CPI inflation to average 2.7 percent, up from 2.1 percent in the last survey. Headline PCE inflation for the current quarter will rise to 2.1 percent, up 0.4 percentage point from the previous estimate.

Notably, the forecasters see little reason to change their projections for inflation beyond the current quarter. Measured on a fourth-quarter over fourth-quarter basis, headline CPI inflation is expected to average 2.1 percent in 2018 and 2.2 percent in 2019, little changed from the last survey. The forecasters have revised slightly their projections for headline PCE inflation in 2018 to 1.9 percent, up from 1.8 percent in the survey of three months ago.

Over the next 10 years, 2018 to 2027, the forecasters expect headline CPI inflation to average 2.25 percent at an annual rate. The corresponding estimate for 10-year annual-average PCE inflation is 2.00 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
2018:Q1
2.1
2.7
2.0
2.2
1.7
2.1
1.7
1.8
2018:Q2
2.0
2.0
2.1
2.1
1.8
1.9
1.8
1.9
2018:Q3
2.2
2.3
2.1
2.2
1.9
1.9
1.8
1.9
2018:Q4
2.1
2.2
2.2
2.2
1.9
1.9
1.9
1.9
2019:Q1
N.A.
2.3
N.A.
2.3
N.A.
2.0
N.A.
2.0
 
Q4/Q4 Annual Averages
2018
2.1
2.1
2.1
2.2
1.8
1.9
1.8
1.9
2019
2.3
2.2
2.2
2.3
2.0
2.0
2.0
2.0
2020
N.A.
2.3
N.A.
2.4
N.A.
2.0
N.A.
2.0
 
Long-Term Annual Averages
2017-2021
2.20
N.A.
N.A.
N.A.
1.90
N.A.
N.A.
N.A.
2018-2022
N.A.
2.20
N.A.
N.A.
N.A.
2.00
N.A.
N.A.
2017-2026
2.20
N.A.
N.A.
N.A.
2.00
N.A.
N.A.
N.A.
2018-2027
N.A.
2.25
N.A.
N.A.
N.A.
2.00
N.A.
N.A.

The charts below show the median projections (the 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 charts highlight a marginally higher level of the long-term projection for CPI inflation and an unchanged long-term projection 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 2018 and 2019 will fall into each of 10 ranges. For 2018, the forecasters have increased the probability that core PCE inflation will be above 2.0 percent, compared with their estimates in the survey of three months ago.

Lower Risk of a Negative Quarter in 2018

The forecasters have revised downward the chance of a contraction in real GDP in any of the next four quarters. For the current quarter, the forecasters predict a 5.8 percent chance of negative growth, down from 10.4 percent in the survey of three months ago. The panelists have also made downward revisions to their probability estimates for the next three quarters in 2018.

Risk of a Negative Quarter (%)
Survey Means
Quarterly data: Previous New
2018:Q1
10.4
5.8
2018:Q2
12.6
9.1
2018:Q3
14.7
11.4
2018:Q4
17.0
13.6
2019:Q1
N.A.
16.8

Forecasters State Their Views on House Price Growth over the Next Two Years

In a special question in this survey, panelists were asked to provide their forecasts for fourth-quarter over fourth-quarter growth in house prices, as measured by a number of alternative indices. The panelists were allowed to choose their measure from a list of indices or to write in their own index. For each index of their choosing, the panelists provided forecasts for growth in 2018 and 2019.

Sixteen panelists answered the special question. Some panelists provided projections for more than one index. The table below provides a summary of the forecasters’ responses. The number of responses (N) is low for each index. The median estimates for the seven house-price indices listed in the table below range from 3.4 percent to 5.8 percent in 2018 and from 3.1 percent to 5.1 percent in 2019.

Projections for Growth in Various Indices of House Prices
Q4/Q4, Percentage Points
 
2018
(Q4/Q4 Percent Change)
2019
(Q4/Q4 Percent Change)
Index
N
Mean
Median
N
Mean
Median
S&P CoreLogic Case-Shiller: U.S. National
6
4.4
4.9
6
4.3
4.2
S&P CoreLogic Case-Shiller: Composite 10
1
5.2
5.2
1
5.1
5.1
S&P CoreLogic Case-Shiller: Composite 20
5
5.0
5.0
5
4.0
4.2
FHFA: U.S. Total
4
4.0
3.7
4
3.3
3.1
FHFA: Purchase Only
6
5.1
5.8
6
3.6
4.3
CoreLogic: National HPI, incl. Distressed Sales (Single Family Combined)
2
5.1
5.1
2
5.0
5.0
NAR Median: Total Existing
2
3.4
3.4
2
3.2
3.2

Forecasters See Lower Long-Run Growth in Output and Productivity

In our first-quarter surveys, the forecasters provide their long-run projections for an expanded set of variables, including growth in output and productivity, as well as returns on financial assets.

As the table below shows, the forecasters have cut their estimates for the annual-average rate of growth in real GDP over the next 10 years. Currently, the forecasters expect real GDP to grow at an annual-average rate of 2.15 percent over the next 10 years, down from their projection of 2.45 percent in the first-quarter survey of 2017. Ten-year annual-average productivity growth is now expected to be 1.50 percent, down from 1.60 percent.

The forecasters see the S&P 500 returning an annual-average 6.00 percent over the next 10 years, unchanged from last year’s first-quarter survey. The forecasters expect the rate on 10-year Treasuries to average 3.70 percent over the next 10 years, down from 3.86 percent in last year’s first-quarter survey. Three-month Treasury bills will return an annual-average 2.75 percent over the next 10 years, up from 2.50 percent.

Median Long-Term (10-Year) Forecasts (%)
  First Quarter 2017 Current Survey
Real GDP Growth
2.45
2.15
Productivity Growth
1.60
1.50
Stock Returns (S&P 500)
6.00
6.00
Rate on 10-Year Treasury Bonds
3.86
3.70
Bill Returns (3-Month)
2.50
2.75

 

Technical Notes

Moody's Aaa and Baa Historical Rates

The historical values of Moody's Aaa and Baa rates are proprietary and, therefore, not available in the data files on the Bank’s website or on the tables that accompany the survey’s complete write-up in the PDF.

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; Gregory Daco, Oxford Economics USA, Inc.; Rajeev Dhawan, Georgia State University; Gabriel Ehrlich, Daniil Manaenkov, Ben Meiselman, Owen Nie, and Aditi Thapar, RSQE, University of Michigan; Michael R. Englund, Action Economics, LLC; J.D. Foster, U.S. Chamber of Commerce; Michael Gapen, Barclays Capital; Sacha Gelfer, Bentley University; James Glassman, JPMorgan Chase & Co.; Jan Hatzius, Goldman Sachs; Keith Hembre, Nuveen Asset Management; Peter Hooper, Deutsche Bank Securities, Inc.; Sam Kahan, Kahan Consulting Ltd. (ACT Research LLC); N. Karp, BBVA Research USA; Walter Kemmsies, Jones Lang LaSalle; Jack Kleinhenz, Kleinhenz & Associates, Inc.; Thomas Lam, Independent Economist; L. Douglas Lee, Economics from Washington; John Lonski, Moody’s Capital Markets Group; Macroeconomic Advisers, IHS Markit; R. Anthony Metz, Pareto Optimal Economics; Michael Moran, Daiwa Capital Markets America; Joel L. Naroff, Naroff Economic Advisors; Michael Neal, National Association of Home Builders; Mark Nielson, Ph.D., MacroEcon Global Advisors; Luca Noto, Anima Sgr; Brendon Ogmundson, BC Real Estate Association; Arun Raha and Maira Trimble, Eaton Corporation; Philip Rothman, East Carolina University; Chris Rupkey, MUFG Union Bank; John Silvia, Wells Fargo; 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.

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

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View Complete Writeup

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First Quarter 2018 PDF

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The survey for 2018 Q2 will be released on May 11, 2018.

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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