Stronger Output Growth and Higher Job Gains in 2020

The U.S. economy in 2020 looks stronger now than it did 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 1.7 percent this quarter, down from 1.9 percent in the last survey. However, for each of the next three quarters, the panel sees higher output growth than they predicted previously. On an annual-average over annual-average basis, the forecasters expect real GDP to grow 2.0 percent in each of the next four years. The current projection for 2020 growth is up from 1.8 percent in the last survey.

A brighter outlook for the labor market accompanies the outlook for growth. The forecasters predict the unemployment rate will average between 3.6 percent and 3.9 percent from 2020 to 2023. Notably, the projections for 2020, 2021, and 2022 are below those of the last survey.

On the employment front, the forecasters have revised upward their estimates for job gains in 2020. The projections for the annual-average level of nonfarm payroll employment suggest job gains at a monthly rate of 168,500 in 2020, up from 143,800 projected 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)
Previous New Previous New Previous New
Quarterly data:
2020:Q1 1.9 1.7 3.6 3.6 133.1 178.2
2020:Q2 1.7 2.1 3.6 3.5 159.4 168.6
2020:Q3 1.7 2.0 3.7 3.5 122.5 132.8
2020:Q4 1.9 2.1 3.7 3.6 127.3 116.7
2021:Q1 N.A. 2.2 N.A. 3.6 N.A. 114.5
Annual data (projections are based on annual-average levels):
2020 1.8 2.0 3.7 3.6 143.8 168.5
2021 2.0 2.0 3.7 3.6 N.A. 125.2
2022 2.0 2.0 3.9 3.7 N.A. N.A.
2023 N.A. 2.0 N.A. 3.9 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 the forecasters have revised upward their estimates of the probability that real GDP will grow 2.0 percent or more in 2020 and 2021.

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 three years, especially in 2020 and 2021.

Lower Inflation in the Current Quarter

The forecasters expect current-quarter headline CPI inflation to average 2.0 percent, down from 2.2 percent in the last survey. Headline PCE inflation for the current quarter will be 1.7 percent, down 0.3 percentage point from the previous estimate.

The forecasters’ projections for inflation beyond the current quarter are little changed compared with the previous survey.

Over the next 10 years, 2020 to 2029, the forecasters expect headline CPI inflation to average 2.20 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
2020:Q1 2.2 2.0 2.3 2.1 2.0 1.7 2.0 1.9
2020:Q2 2.1 2.0 2.2 2.1 2.0 1.8 2.0 1.9
2020:Q3 2.2 2.2 2.2 2.1 1.9 1.9 2.0 1.9
2020:Q4 2.1 2.2 2.2 2.2 1.9 2.0 2.0 1.9
2021:Q1 N.A. 2.2 N.A. 2.2 N.A. 2.0 N.A. 1.9
Q4/Q4 Annual Averages
2020 2.1 2.0 2.3 2.2 1.9 1.9 2.0 1.9
2021 2.2 2.2 2.2 2.1 2.0 2.0 1.9 1.9
2022 N.A. 2.3 N.A. 2.2 N.A. 2.0 N.A. 1.9
Long-Term Annual Averages
2019-2023 2.20 N.A. N.A. N.A. 1.90 N.A. N.A. N.A.
2020-2024 N.A. 2.20 N.A. N.A. N.A. 2.00 N.A. N.A.
2019-2028 2.20 N.A. N.A. N.A. 2.00 N.A. N.A. N.A.
2020-2029 N.A. 2.20 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 unchanged projections for the long-term inflation rate, compared with those of the last survey.

The figures below show the probabilities that the forecasters are assigning to each of 10 possible ranges for fourth-quarter over fourth-quarter core PCE inflation in 2020 and 2021. For 2020, the forecasters have increased the probability that core PCE inflation will be below 2.0 percent.

Lower 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 12.5 percent chance of negative growth, down from 18.1 percent in the survey of three months ago.

Risk of a Negative Quarter (%)

Quarterly data: Previous New
2020:Q1 18.1 12.5
2020:Q2 20.8 14.9
2020:Q3 22.6 18.4
2020:Q4 25.1 21.3
2021:Q1 N.A. 25.7

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 2020 and 2021.

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 six house-price indices listed in the table below range from 3.5 percent to 4.3 percent in 2020 and from 2.8 percent to 4.0 percent in 2021.

Projections for Growth in Various Indices of House Prices

(Q4/Q4 Percent Change)
(Q4/Q4 Percent Change)
Index N Mean Median N Mean Median
S&P CoreLogic Case-Shiller: U.S. National 5 4.2 4.2 5 3.7 3.4
S&P CoreLogic Case-Shiller: Composite 10 2 4.2 4.2 2 4.0 4.0
S&P CoreLogic Case-Shiller: Composite 20 5 3.5 3.5 5 3.3 2.8
FHFA: Purchase Only (U.S. Total) 10 4.1 4.1 10 3.9 3.9
CoreLogic: National HPI, incl. Distressed Sales (Single Family Combined) 4 4.2 4.3 4 3.8 3.8
NAR Median: Total Existing 2 3.8 3.8 2 3.7 3.7

Stable 10-Year Growth in Output and Productivity and Lower Returns to Financial Assets

In our first-quarter surveys, the forecasters provide their 10-year annual-average 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 projection for the annual-average rate of growth in real GDP over the next 10 years is nearly unchanged. Currently, the forecasters expect real GDP to grow at an annual-average rate of 2.00 percent over the next 10 years, almost identical to their projection of 1.99 percent in the first-quarter survey of 2019. Ten-year annual-average productivity growth is now expected to be 1.40 percent, up slightly from 1.35 percent previously.

Downward revisions to the return on financial assets accompany the current outlook. The forecasters predict the S&P 500 returning an annual-average 5.00 percent over the next 10 years, down from 5.35 percent. The forecasters see the rate on 10-year Treasuries averaging 2.70 percent over the next 10 years, down from 3.50 percent in last year’s first-quarter survey. Three-month Treasury bills will return an annual-average 2.02 percent over the next 10 years, down from 2.75 percent.

Median Long-Term (10-Year) Forecasts (%)

  First Quarter 2019 Current Survey
Real GDP Growth 1.99 2.00
Productivity Growth 1.35 1.40
Stock Returns (S&P 500) 5.35 5.00
Rate on 10-Year Treasury Bonds 3.50 2.70
Bill Returns (3-Month) 2.75 2.02

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.; Wayne Best and Michael Brown, Visa, Inc.; Jay Bryson, Wells Fargo; J. Burton, G. Ehrlich, D. Manaenkov, W. Song, and A. Thapar, RSQE, University of Michigan; 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; Michael R. Englund, Action Economics, LLC; Michael Gapen, Barclays Capital; Sacha Gelfer, Bentley University; James Glassman, JPMorgan Chase & Co.; Jan Hatzius, Goldman Sachs; Brian Higginbotham, U.S. Chamber of Commerce; Peter Hooper, Deutsche Bank Securities, Inc.; Fred Joutz, Benchmark Forecasts; 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; John Lonski, Moody’s Capital Markets Group; IHS Markit; Robert McNab, Old Dominion University; R. Anthony Metz, Pareto Optimal Economics; R. M. Monaco, TitanRM; Michael Moran, Daiwa Capital Markets America; Joel L. Naroff, Naroff Economic Advisors; Mark Nielson, Ph.D., MacroEcon Global Advisors; Brendon Ogmundson, BC Real Estate Association; 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; Maira Trimble, Eaton Corporation; 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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