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Fourth Quarter 2018 Survey of Professional Forecasters

Weaker Near-Term Growth amid Stronger Job Gains

The outlook for growth in the U.S. economy over the next four quarters is slightly weaker from that of three months ago, according to 37 forecasters surveyed by the Federal Reserve Bank of Philadelphia. The panel predicts real GDP will grow at an annual rate of 2.6 percent this quarter and 2.4 percent next quarter, down from the previous estimates of 2.8 percent and 2.5 percent, respectively. On an annual-average over annual-average basis, the forecasters see little change in real GDP growth in 2018 and 2019, but they predict higher real output growth in 2020 and 2021, compared with their previous projections.

The forecasters see a mostly unchanged outlook for the unemployment rate. On an annual-average basis, the forecasters predict the unemployment rate will be in the range of 3.7 percent to 4.0 percent from 2018 to 2021.

On the employment front, the forecasters have revised upward their estimates for job gains in 2018 and 2019. The projections for the annual-average level of nonfarm payroll employment suggest job gains at a monthly rate of 198,500 in 2018, up from the previous estimate of 194,800, and 181,900 in 2019, up from 167,800 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:Q4 2.8 2.6 3.7 3.7 173.3 203.1
2019:Q1 2.5 2.4 3.7 3.7 161.5 172.4
2019:Q2 2.7 2.7 3.6 3.6 162.0 168.1
2019:Q3 2.6 2.4 3.6 3.6 150.1 159.7
2019:Q4 N.A. 2.2 N.A. 3.6 N.A. 142.9
Annual data (projections are based on annual-average levels):
2018 2.8 2.9 3.9 3.9 194.8 198.5
2019 2.8 2.7 3.6 3.7 167.8 181.9
2020 1.8 2.1 3.7 3.8 N.A. N.A.
2021 1.5 1.7 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 have changed little from 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 in 2018 and 2019.

Inflation Projections Are Holding Steady

The current outlook for the headline and core measures of CPI and PCE inflation during the next two years remains mostly unchanged. Measured on a fourth-quarter over fourth-quarter basis, core CPI inflation is expected to average 2.2 percent for the current year and 2.4 percent for 2019 and 2020. The projections for core PCE inflation are 2.0 percent for 2018 and 2.1 percent for 2019 and 2020.

Over the next 10 years, 2018 to 2027, the forecasters expect headline CPI inflation to average 2.21 percent at an annual rate. The corresponding estimate for 10-year annual-average PCE inflation is 2.01 percent. These estimates have changed little from the forecasts 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:Q4 2.3 2.3 2.3 2.1 2.1 2.2 2.0 2.0
2019:Q1 2.4 2.4 2.4 2.3 2.1 2.2 2.1 2.1
2019:Q2 2.1 2.3 2.4 2.3 2.0 2.1 2.1 2.1
2019:Q3 2.3 2.3 2.4 2.4 2.1 2.1 2.1 2.1
2019:Q4 N.A. 2.4 N.A. 2.4 N.A. 2.1 N.A. 2.1
Q4/Q4 Annual Averages
2018 2.4 2.4 2.3 2.2 2.1 2.1 2.0 2.0
2019 2.3 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 2.22 2.25 N.A. N.A. 2.04 2.10 N.A. N.A.
2018-2027 2.20 2.21 N.A. N.A. 2.00 2.01 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 the nearly unchanged projections for the long-term CPI and PCE inflation, compared with those of the previous survey.

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 about the same now as they were previously.

Low Risk of a Negative Quarter

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 5.7 percent chance of negative growth, down from 10.5 percent in the survey of three months ago. The forecasters have also made downward revisions to their risk forecasts for the following three quarters.

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

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, Sim Kee Boon Institute, Singapore Management University; 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; 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/Montclair State University; 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; Gary Wagner, University of Louisiana at Lafayette; 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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Fourth Quarter 2018  PDF

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Tom Stark
Federal Reserve Bank of Philadelphia
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Philadelphia, PA 19106
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