Forecasters See Higher Growth and Stronger Labor Market in 2023

The outlook for the U.S. economy in 2023 looks somewhat better now than it did three months ago, according to 37 forecasters surveyed by the Federal Reserve Bank of Philadelphia. The forecasters predict the economy will expand at an annual rate of 0.6 percent this quarter and 1.0 percent in the second quarter of 2023, up from the previous predictions of 0.2 percent in each quarter. On an annual-average over annual-average basis, the forecasters expect real GDP to increase 1.3 percent in 2023, up from the projection of 0.7 percent in the survey of three months ago.

A downward revision to the path for the unemployment rate accompanies the outlook for growth. The forecasters predict the unemployment rate will increase from 3.5 percent this quarter to 4.1 percent in the fourth quarter of 2023. In the previous survey, the unemployment rate was forecast to rise from 3.8 percent to 4.4 percent over the same period. On an annual-average basis, the forecasters expect the unemployment rate to average 3.8 percent this year, marking a downward revision from the previous estimate of 4.2 percent.

On the employment front, the panelists have revised upward their estimates for job gains in 2023. The projections for the annual-average level of nonfarm payroll employment suggest job gains at a monthly rate of 217,800 in 2023, up from 143,600 projected three months ago.

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:
2023:Q1 0.2 0.6 3.8 3.5 79.0 281.9
2023:Q2 0.2 1.0 4.0 3.7 35.8 0.5
2023:Q3 0.9 -0.1 4.3 3.9 41.8 47.5
2023:Q4 2.1 1.2 4.4 4.1 -14.5 62.7
2024:Q1 N.A. 1.3 N.A. 4.2 N.A. 60.8
Annual data (projections are based on annual-average levels):
2023 0.7 1.3 4.2 3.8 143.6 217.8
2024 1.8 1.4 4.3 4.2 N.A. 43.3
2025 2.2 2.2 4.2 4.2 N.A. N.A.
2026 N.A. 1.5 N.A. 4.1 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. For 2023, the forecasters see a higher probability that growth will fall into the positive ranges than they did in the previous survey. For 2024 and 2025, the forecasters see few changes to the probability estimates they projected in the survey of three months ago.

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. For 2023 and 2024, the forecasters are raising their probability estimates from the previous survey for an unemployment rate below 4.0 percent.

Forecasters Predict Lower Inflation

The forecasters expect current-quarter headline CPI inflation will average 3.3 percent at an annual rate, down from the prediction of 4.5 percent in the survey of three months ago. Headline PCE inflation over the current quarter will also be lower at an annual rate of 3.2 percent, down from the previous estimate of 3.8 percent.

Projections for headline and core CPI and PCE inflation at all other forecast horizons have also been revised downward or remain unchanged, compared with those of the previous survey.

Over the next 10 years, 2023 to 2032, the forecasters predict headline CPI inflation will be at an annual-average rate of 2.37 percent. The corresponding estimate for 10-year annual-average PCE inflation is 2.15 percent. Notably, these 10-year projections are 0.58 percentage point and 0.43 percentage point lower than those of the previous survey, which covered the 10-year horizon from 2022 to 2031.

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
2023:Q1 4.5 3.3 4.5 3.8 3.8 3.2 3.8 3.6
2023:Q2 3.5 3.4 3.7 3.6 3.1 3.0 3.2 3.1
2023:Q3 3.1 3.1 3.2 3.1 2.7 2.6 2.8 2.7
2023:Q4 2.9 2.8 2.9 2.9 2.7 2.6 2.7 2.5
2024:Q1 N.A. 2.6 N.A. 2.8 N.A. 2.3 N.A. 2.5
Q4/Q4 Annual Averages
2023 3.4 3.1 3.5 3.4 2.9 2.8 3.0 3.0
2024 2.5 2.5 2.6 2.6 2.3 2.2 2.4 2.3
2025 N.A. 2.4 N.A. 2.4 N.A. 2.2 N.A. 2.1
Long-Term Annual Averages
2022-2026 3.75 N.A. N.A. N.A. 3.23 N.A. N.A. N.A.
2023-2027 N.A. 2.50 N.A. N.A. N.A. 2.30 N.A. N.A.
2022-2031 2.95 N.A. N.A. N.A. 2.58 N.A. N.A. N.A.
2023-2032 N.A. 2.37 N.A. N.A. N.A. 2.15 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 provide perspective on the lower 10-year inflation expectations 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 2023 and 2024. The forecasters have reduced their estimates for the probability that core PCE inflation in 2023 will be 3.5 percent or higher compared with their prediction in the last survey.

Lower (but Significant) Risk of Negative Real GDP Growth in 2023

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 40.4 percent chance of negative growth, down from 47.2 percent in the previous survey. The forecasters have also made downward revisions to their probability estimates for the following three quarters.

Risk of a Negative Quarter (%)
Survey Means

Quarterly data: Previous New
2023:Q1 47.2 40.4
2023:Q2 49.4 42.4
2023:Q3 46.1 44.9
2023:Q4 43.5 40.6
2024:Q1 N.A. 31.8

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 2023 and 2024.

Fourteen 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 -4.4 percent to 0.0 percent in 2023 and from  -3.0 percent to 4.0 percent in 2024.

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 5 -4.0 -4.2 5 -1.1 0.6
S&P CoreLogic Case-Shiller: Composite 10 1 0.0 0.0 1 4.0 4.0
S&P CoreLogic Case-Shiller: Composite 20 4 -3.6 -4.4 4 1.0 1.7
FHFA: Purchase Only (U.S. Total) 8 0.3 -1.5 8 2.0 2.2
CoreLogic: National HPI, incl. Distressed Sales (Single Family Combined) 2 -3.6 -3.6 1 -3.0 -3.0
NAR Median: Total Existing 2 -2.3 -2.3 2 1.4 1.4

Lower 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 2.00 percent over the next 10 years, lower than their projection of 2.28 percent in the first-quarter survey of 2022. Ten-year annual-average productivity growth is now expected to be 1.30 percent, down from 1.60 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 7.50 percent over the next 10 years, up from the previous estimate of 6.73 percent in the first-quarter survey of 2022. The forecasters see the rate on 10-year Treasuries averaging 3.35 percent over the next 10 years, up from 3.07 percent in last year’s first-quarter survey. Three-month Treasury bills will return an annual-average 2.65 percent over the next 10 years, up from 2.25 percent previously.

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

  First Quarter 2022 Current Survey
Real GDP Growth 2.28 2.00
Productivity Growth 1.60 1.30
Stock Returns (S&P 500) 6.73 7.50
Rate on 10-Year Treasury Bonds 3.07 3.35
Bill Returns (3-Month) 2.25 2.65

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); Anwiti Bahuguna and Ed Al-Hussainy, Columbia Threadneedle Investments; 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; Grant Collins, AIM Research, LLC; 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; Steve Kihm, Citizens Utility Board of Wisconsin; Oren Klachkin and Ryan Sweet, Oxford Economics USA, Inc.; Jack Kleinhenz, Kleinhenz & Associates, Inc.; Yaniv Konchitchki, University of California, Berkeley; Thomas Lam, Sim Kee Boon Institute, Singapore Management University; Brian Martin, Australia New Zealand Bank (ANZ); Robert McNab, Old Dominion University; R. Anthony Metz, Pareto Optimal Economics; R. M. Monaco, TitanRM; Joel L. Naroff, Naroff Economic Advisors; Nomura Securities International; Brendon Ogmundson, BC Real Estate Association; Perc Pineda, Ph.D., Plastics Industry Association; Joel Prakken and Chris Varvares, S&P Global Market Intelligence; Jason Prole, Capital Risk Management; Michael Roberts, Roberts Capital Advisors, LLC; Alfredo A. Romero, North Carolina A&T State University; Philip Rothman, East Carolina University; Allen Sinai and Lu Yu, Decision Economics, Inc.; Sean Snaith, University of Central Florida; Stephen Stanley, Santander Capital Markets; Charles Steindel, Editor, NABE Business Economics; Susan M. Sterne, Economic Analysis Associates, Inc.; Edward Sullivan, Portland Cement Association; James Sweeney, Credit Suisse; Jordan Vickers and Marie Dempsey, Eaton Corporation; Lawrence Werther, Daiwa Capital Markets America; 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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