Stronger Economic Rebound with Lower Unemployment

The outlook for the U.S. economy over the next three years looks stronger now than it did three months ago, according to 39 forecasters surveyed by the Federal Reserve Bank of Philadelphia. The panel predicts real GDP will grow at an annual rate of 3.2 percent this quarter, unchanged from the prediction in the last survey. However, over the remaining quarters in 2021 and the following two years, the panelists see a stronger rebound in output growth than they predicted previously. On an annual-average over annual-average basis, the forecasters expect real GDP to grow at an annual rate of 4.5 percent in 2021 and 3.7 percent in 2022. The projections for 2021 and 2022 are up from 4.0 percent and 3.0 percent, respectively, in the last survey.

A brighter outlook for the unemployment rate accompanies the outlook for growth. The forecasters predict unemployment will decrease from a projected 6.3 percent this quarter to 5.1 percent in the first quarter of 2022. On an annual-average basis, the panelists predict the unemployment rate will decline from a projected 5.9 percent in 2021 to 4.0 percent in 2024. The annual-average projections for 2021, 2022, and 2023 are 0.4 percentage point below those of the last survey.

On the employment front, the forecasters have revised downward their estimates for job gains in 2021. The projections for the annual-average level of nonfarm payroll employment suggest job gains at a monthly rate of 223,400 in 2021, down from 321,600 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:
2021:Q1 3.2 3.2 6.7 6.3 471.6 143.1
2021:Q2 3.5 5.0 6.5 6.1 423.8 396.1
2021:Q3 3.5 5.3 6.1 5.7 444.5 445.8
2021:Q4 3.3 4.0 5.8 5.4 399.5 565.8
2022:Q1 N.A. 3.7 N.A. 5.1 N.A. 441.4
Annual data (projections are based on annual-average levels):
2021 4.0 4.5 6.3 5.9 321.6 223.4
2022 3.0 3.7 5.2 4.8 N.A. 329.8
2023 2.1 3.1 4.6 4.2 N.A. N.A.
2024 N.A. 2.5 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 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 4.0 percent or more in 2021 and 2022.

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 probability estimates for an unemployment rate below 5.0 percent over each of the next three years, compared with their previous estimates.

Forecasters Hike Their Estimates for Inflation

The forecasters expect current-quarter headline CPI inflation to average 2.5 percent, up from 2.0 percent in the last survey. Headline PCE inflation over the current quarter will be 2.4 percent, up 0.6 percentage point from the previous estimate.

Projections for headline and core CPI and PCE inflation at all other forecast horizons have been revised upward slightly or held steady, compared with those in the survey of three months ago.

Over the next 10 years, 2021 to 2030, 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 2.03 percent. These 10-year projections are higher than those of the previous survey.

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
2021:Q1 2.0 2.5 1.8 1.8 1.8 2.4 1.7 1.9
2021:Q2 2.0 2.1 2.0 2.1 1.8 1.8 1.7 1.8
2021:Q3 2.1 2.1 1.9 2.1 2.0 1.9 1.8 1.9
2021:Q4 2.2 2.2 1.9 2.1 1.9 2.0 1.7 1.9
2022:Q1 N.A. 2.2 N.A. 2.1 N.A. 2.0 N.A. 1.9
Q4/Q4 Annual Averages
2021 2.0 2.2 1.9 2.0 1.9 2.0 1.8 1.8
2022 1.9 2.2 2.0 2.1 1.8 1.9 1.7 1.9
2023 N.A. 2.2 N.A. 2.2 N.A. 2.0 N.A. 2.0
Long-Term Annual Averages
2020-2024 2.00 N.A. N.A. N.A. 1.79 N.A. N.A. N.A.
2021-2025 N.A. 2.20 N.A. N.A. N.A. 2.00 N.A. N.A.
2020-2029 2.12 N.A. N.A. N.A. 1.90 N.A. N.A. N.A.
2021-2030 N.A. 2.20 N.A. N.A. N.A. 2.03 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 slightly higher 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 2021 and 2022. For 2021, the forecasters have increased the probability that core PCE inflation will be above 2.0 percent.

Lower Risk of a Negative Quarter in 2021

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 19.1 percent chance of negative growth, down from 20.4 percent in the survey of three months ago. The panelists have also made downward revisions to their probability estimates for the following three quarters in 2021.

Risk of a Negative Quarter (%)
Survey Means

Quarterly data: Previous New
2021:Q1 20.4 19.1
2021:Q2 17.5 12.7
2021:Q3 14.4 12.3
2021:Q4 13.9 12.9
2022:Q1 N.A. 14.1

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 2021 and 2022.

Fifteen 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 4.7 percent to 7.9 percent in 2021 and from 3.5 percent to 5.3 percent in 2022.

Projections for Growth in Various Indices of House Prices
Q4/Q4, Percentage Points

(Q4/Q4 Percent Change)
(Q4/Q4 Percent Change)
Index N Mean Median N Mean Median
S&P CoreLogic Case-Shiller: U.S. National 9 6.6 6.8 8 4.5 4.5
S&P CoreLogic Case-Shiller: Composite 10 2 4.7 4.7 2 3.9 3.9
S&P CoreLogic Case-Shiller: Composite 20 4 7.0 7.5 4 4.9 5.0
FHFA: Purchase Only (U.S. Total) 9 5.4 5.6 8 3.8 3.5
CoreLogic: National HPI, incl. Distressed Sales (Single Family Combined) 1 5.6 5.6 1 5.3 5.3
NAR Median: Total Existing 2 7.9 7.9 2 5.1 5.1

Forecasters See Higher 10-Year Growth in Output and Productivity Than They Predicted One Year Ago

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 forecasters expect real GDP to grow at an annual-average rate of 2.25 percent over the next 10 years, higher than their projection of 2.00 percent in the first-quarter survey of 2020. Ten-year annual-average productivity growth is now expected to be 1.75 percent, up from 1.40 percent previously.

Mixed 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, unchanged from the first-quarter survey of 2020. The forecasters see the rate on 10-year Treasuries averaging 2.80 percent over the next 10 years, up slightly from 2.70 percent in last year’s first-quarter survey. Three-month Treasury bills will return an annual-average 1.75 percent over the next 10 years, down from 2.02 percent previously.

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

  First Quarter 2020 Current Survey
Real GDP Growth 2.00 2.25
Productivity Growth 1.40 1.75
Stock Returns (S&P 500) 5.00 5.00
Rate on 10-Year Treasury Bonds 2.70 2.80
Bill Returns (3-Month) 2.02 1.75

Technical Notes

New Probability Ranges

Beginning with the 2020:Q2 survey, changes were made to the definition of the probability bins for real GDP growth and the unemployment rate over the next four years.

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; 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; G. Ehrlich, D. Manaenkov, T. Ranoso, and A. Thapar, RSQE, University of Michigan; Michael R. Englund, Action Economics, LLC; Sacha Gelfer, Bentley University; James Glassman, JPMorgan Chase & Co.; Jan Hatzius, Goldman Sachs; Fred Joutz, Benchmark Forecasts; Sam Kahan, Kahan Consulting Ltd. (ACT Research LLC); N. Karp, BBVA Research USA; Walter Kemmsies and Ryan Severino, Jones Lang LaSalle; Jack Kleinhenz, Kleinhenz & Associates, Inc.; Rohan Kumar, Decision Economics, Inc.; Thomas Lam, Sim Kee Boon Institute, Singapore Management University; John Lonski, Moody’s Capital Markets Group; Matthew Luzzetti, Deutsche Bank Securities; 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; Brendon Ogmundson, BC Real Estate Association; Perc Pineda, Ph.D., Plastics Industry 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, Inc.; 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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