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Third Quarter 2018 Survey of Professional Forecasters

Steady Outlook for Growth with Stronger Labor Markets

The outlook for growth in the U.S. economy over the next three years is mostly unchanged from that of three months ago, according to 38 forecasters surveyed by the Federal Reserve Bank of Philadelphia. The panel predicts real GDP will grow at an annual rate of 3.0 percent this quarter and 2.8 percent next quarter, unchanged from the estimates of three months ago. On an annual-average over annual-average basis, the forecasters expect real GDP to grow 2.8 percent in 2018 and 2019, 1.8 percent in 2020, and 1.5 percent in 2021.

The forecasters see a small improvement in the outlook for the unemployment rate. The forecasters predict the unemployment rate will average 3.9 percent in 2018, 3.6 percent in 2019, 3.7 percent in 2020, and 4.0 percent in 2021. The projections for 2019 and 2020 are slightly below those of the last survey, indicating a better outlook for unemployment.

On the employment front, the forecasters have revised upward their estimates for job gains over the next two years. The projections for the annual-average level of nonfarm payroll employment suggest job gains at a monthly rate of 194,800 in 2018, up from the previous estimate of 185,900, and 167,800 in 2019, up from 160,800 estimated three months ago. (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)
Quarterly data:
2018:Q3 3.0 3.0 3.9 3.8 175.0 197.1
2018:Q4 2.8 2.8 3.8 3.7 160.4 173.3
2019:Q1 2.4 2.5 3.8 3.7 160.9 161.5
2019:Q2 2.6 2.7 3.7 3.6 151.7 162.0
2019:Q3 N.A. 2.6 N.A. 3.6 N.A. 150.1
Annual data (projections are based on annual-average levels):
2018 2.8 2.8 3.9 3.9 185.9 194.8
2019 2.7 2.8 3.7 3.6 160.8 167.8
2020 1.9 1.8 3.9 3.7 N.A. N.A.
2021 2.0 1.5 4.0 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 presents the forecasters’ previous and current estimates of the probability that growth will fall into each of 11 ranges. The charts show that the estimates of uncertainty about growth over the next four years are nearly the same as those 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 charts show the panelists are raising their density estimates for an unemployment rate below 4.0 percent for the next four years.

Forecasters See Slightly Lower Inflation in 2018

The forecasters expect current-year headline CPI inflation to average 2.4 percent, down slightly from 2.5 percent in the last survey. Core CPI inflation for 2018 will be 2.3 percent, down 0.2 percentage point from the previous estimate.

The forecasters predict current-year headline PCE inflation to average 2.1 percent, unchanged from the last survey. Core PCE inflation for 2018 will be 2.0 percent, down 0.2 percentage point from the previous estimate.

Over the next 10 years, 2018 to 2027, the forecasters expect headline CPI inflation to average 2.20 percent at an annual rate, down 0.1 percentage point from the previous estimate. The corresponding estimate for 10-year annual-average PCE inflation is 2.00 percent, unchanged from the estimate of three months ago.

Median Short-Run and Long-Run Projections for Inflation (Annualized Percentage Points)
Headline CPI
Core CPI
Headline PCE
Core PCE
2018:Q3 2.2 2.3 2.3 2.3 2.0 2.0 2.1 2.0
2018:Q4 2.3 2.3 2.3 2.3 2.0 2.1 2.1 2.0
2019:Q1 2.3 2.4 2.4 2.4 2.1 2.1 2.1 2.1
2019:Q2 2.2 2.1 2.4 2.4 2.0 2.0 2.0 2.1
2019:Q3 N.A. 2.3 N.A. 2.4 N.A. 2.1 N.A. 2.1
Q4/Q4 Annual Averages
2018 2.5 2.4 2.5 2.3 2.1 2.1 2.2 2.0
2019 2.2 2.3 2.4 2.4 2.1 2.1 2.1 2.1
2020 2.3 2.3 2.4 2.4 2.1 2.1 2.1 2.1
Long-Term Annual Averages
2018-2022 2.20 2.22 N.A. N.A. 2.00 2.04 N.A. N.A.
2018-2027 2.30 2.20 N.A. N.A. 2.00 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 slightly lower 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 both years, the estimates are nearly the same as those of the previous survey, suggesting that the forecasters’ assessment of the uncertainty about future inflation is holding steady.

Forecasters See Little Change to the Risk of a Negative Quarter

The forecasters have marginally revised downward the chance of a contraction in real GDP in any of the next three quarters. For the current quarter, the forecasters predict a 6.6 percent chance of negative growth, down from 8.6 percent in the survey of three months ago. The forecasters have also made downward revisions to their forecasts for the following two quarters. For the second quarter in 2019, the forecasters predict a 16.4 percent chance of negative growth, up from 15.6 percent in the previous survey.

Risk of a Negative Quarter (%)
Survey Means
Quarterly data: Previous New


Natural Rate of Unemployment Estimated at 4.3 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 4.30 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. Thirty-four percent of the 32 forecasters who answered the question report that they use the natural rate in their forecasts. The lowest estimate is 3.80 percent, and the highest estimate is 4.60 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
2017:Q3 44 4.50 3.50 5.00
2018:Q3 34 4.30 3.80 4.60

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.; Jay Bryson, Wells Fargo; 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; Bill Diviney, ABN AMRO Bank NV; Gabriel Ehrlich, Daniil Manaenkov, 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; Robert McNab, Old Dominion University; 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; 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; 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 2018  PDF

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The survey for 2018 Q4 will be released on November 13, 2018.

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For further information about the Survey of Professional Forecasters, contact:

Tom Stark
Federal Reserve Bank of Philadelphia
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Philadelphia, PA 19106
PHIL.SPF@phil.frb.org E-mail