Forecasters See Slower Growth in the First Quarter

The U.S. economy for the current quarter looks weaker now than it did in November, according to 36 forecasters surveyed by the Federal Reserve Bank of Philadelphia. The forecasters predict real GDP will grow at an annual rate of 1.8 percent in the first quarter of 2022, down 2.1 percentage points from the prediction of 3.9 percent in the last survey. Using the annual-average over annual-average computation, the panel expects real GDP will grow at an annual rate of 3.7 percent this year, 2.7 percent in 2023, and 2.3 percent in 2024. The annual projections are little changed from the estimates of three months ago.

Downward revisions to the projections for the unemployment rate accompany the outlook for growth. The forecasters expect the unemployment rate will decrease from a projected 3.9 percent this quarter to 3.4 percent in the first quarter of 2023. Using the annual-average computation, the panelists predict the unemployment rate will decline from 3.7 percent in 2022 to 3.4 percent in 2023 and move slightly higher over the next two years. The annual-average projections for 2022 to 2024 are 0.1 to 0.4 percentage point lower than those of the last survey.

The forecasters have revised upward their estimates for job gains over the first two quarters of 2022. On an annual basis, the projections for the annual-average level of nonfarm payroll employment suggest job gains at a monthly rate of 430,900 in 2022, little changed from the previous estimate. (These annual-average projections 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:
2022:Q1 3.9 1.8 4.3 3.9 407.8 436.1
2022:Q2 4.0 4.2 4.1 3.7 310.9 357.0
2022:Q3 3.1 3.0 3.9 3.6 321.5 257.0
2022:Q4 3.1 2.9 3.9 3.5 306.2 225.4
2023:Q1 N.A. 2.8 N.A. 3.4 N.A. 144.8
Annual data (projections are based on annual-average levels):
2022 3.9 3.7 4.1 3.7 439.7 430.9
2023 2.6 2.7 3.6 3.4 N.A. 197.2
2024 2.3 2.3 3.7 3.6 N.A. N.A.
2025 N.A. 2.3 N.A. 3.7 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 forecasters see a higher probability that growth will fall into the range of 2.5 percent to 3.9 percent over each of the next two years than they predicted 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 and previous 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 4.0 percent over each of the next three years, compared with their previous estimates.

Forecasters See Higher Near-Term Inflation

The forecasters predict current-quarter headline CPI inflation to average 5.5 percent, up from the forecast of 3.0 percent in the last survey. Headline PCE inflation over the current quarter will be 4.7 percent, up from the previous forecast of 3.0 percent.

Projections for headline and core CPI and PCE inflation in 2022 have been revised upward, compared with the projections in the survey of three months ago.

Over the next 10 years, 2022 to 2031, the forecasters predict headline CPI inflation will average 2.50 percent at an annual rate. The corresponding estimate for 10-year annual-average PCE inflation is 2.20 percent. These 10-year projections are slightly below those of the previous survey, which covered the 10-year horizon from 2021 to 2030.

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
2022:Q1 3.0 5.5 2.8 5.1 3.0 4.7 2.5 4.3
2022:Q2 2.6 3.8 2.6 3.6 2.5 3.1 2.4 3.1
2022:Q3 2.5 2.7 2.6 3.1 2.3 2.6 2.3 2.5
2022:Q4 2.4 2.7 2.4 2.6 2.2 2.4 2.1 2.3
2023:Q1 N.A. 2.5 N.A. 2.5 N.A. 2.3 N.A. 2.3
Q4/Q4 Annual Averages
2022 2.7 3.8 2.6 3.6 2.4 3.1 2.3 3.1
2023 2.4 2.4 2.4 2.5 2.2 2.2 2.1 2.2
2024 N.A. 2.3 N.A. 2.4 N.A. 2.2 N.A. 2.2
Long-Term Annual Averages
2021-2025 2.90 N.A. N.A. N.A. 2.59 N.A. N.A. N.A.
2022-2026 N.A. 2.70 N.A. N.A. N.A. 2.40 N.A. N.A.
2021-2030 2.55 N.A. N.A. N.A. 2.30 N.A. N.A. N.A.
2022-2031 N.A. 2.50 N.A. N.A. N.A. 2.20 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 10-year annual-average CPI and PCE inflation. The charts show the slightly lower projections for the long-term inflation rate in the current 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 2022 and 2023. The forecasters have significantly raised their estimates for the probability that core PCE inflation in 2022 will be 3.0 percent or higher, compared with their estimates of three months ago.

Forecasters See a One-in-Five Chance of Negative First-Quarter Real GDP Growth

The forecasters have raised their probability estimates for the risk of a downturn in real GDP this quarter to 20.3 percent, up from 13.3 percent in the previous survey.

Risk of a Negative Quarter (%)
Survey Means

Quarterly data: Previous New
2022:Q1 13.3 20.3
2022:Q2 15.0 14.8
2022:Q3 15.9 17.5
2022:Q4 16.9 16.3
2023:Q1 N.A. 18.1

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 2022 and 2023.

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 7.0 percent to 8.5 percent in 2022 and from 3.9 percent to 6.0 percent in 2023.

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 8 7.0 7.3 8 3.8 3.9
S&P CoreLogic Case-Shiller: Composite 10 1 8.1 8.1 1 4.6 4.6
S&P CoreLogic Case-Shiller: Composite 20 4 8.6 8.5 4 4.9 4.8
FHFA: Purchase Only (U.S. Total) 7 9.4 8.1 7 5.6 6.0
CoreLogic: National HPI, incl. Distressed Sales (Single Family Combined) 1 7.0 7.0 1 5.5 5.5
NAR Median: Total Existing 1 7.2 7.2 7 4.8 4.8

Little Change in Long-Term Output and Productivity Growth but Higher Returns on 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 forecasters expect real GDP to grow at an annual-average rate of 2.28 percent over the next 10 years, little changed from their projection of 2.25 percent in the first-quarter survey of 2021. Ten-year annual-average productivity growth is now expected to be 1.60 percent, down slightly from 1.75 percent previously.

Higher returns on financial assets over the next 10 years accompany the current long-term outlook for real GDP and productivity. The forecasters predict the S&P 500 returning an annual-average 6.73 percent over the next 10 years, up from the previous estimate of 5.00 percent in the first-quarter survey of 2021. The forecasters see the rate on 10-year Treasuries averaging 3.07 percent over the next 10 years, up from 2.80 percent in last year’s first-quarter survey. Three-month Treasury bills will return an annual-average 2.25 percent over the next 10 years, up from 1.75 percent previously.

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

  First Quarter 2021 Current Survey
Real GDP Growth 2.25 2.28
Productivity Growth 1.75 1.60
Stock Returns (S&P 500) 5.00 6.73
Rate on 10-Year Treasury Bonds 2.80 3.07
Bill Returns (3-Month) 1.75 2.25

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:

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; Gabriel Ehrlich, Daniil Manaenkov, and Tereza Ranosova, 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; Jack Kleinhenz, Kleinhenz & Associates, Inc.; Yaniv Konchitchki, University of California, Berkeley; Rohan Kumar and Allen Sinai, 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; Nomura Securities International; Brendon Ogmundson, BC Real Estate Association; Perc Pineda, Ph.D., Plastics Industry Association; Jason Prole, Capital Risk Management; 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, Editor, NABE Business Economics; Susan M. Sterne, Economic Analysis Associates, Inc.; James Sweeney, Credit Suisse; 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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