Faster Pace of Economic Rebound with Stronger Labor Markets

The U.S. economy looks stronger now than it did three months ago, according to 36 forecasters surveyed by the Federal Reserve Bank of Philadelphia. The panel predicts real GDP will grow at an annual rate of 7.9 percent this quarter, up 2.9 percentage points from the prediction in the last survey. Over the next three quarters, the panelists also see a stronger rebound in output growth than they predicted previously. Using the annual-average over annual-average computation, the forecasters expect real GDP to grow at an annual rate of 6.3 percent in 2021 and 4.3 percent in 2022. The projections for 2021 and 2022 are up from 4.5 percent and 3.7 percent, respectively, in the last survey.

The upward revision to growth is accompanied by a brighter outlook for the unemployment rate. The forecasters predict unemployment will decrease from a projected 5.8 percent this quarter to 4.5 percent in the second quarter of 2022. Using the annual-average computation, the panelists predict the unemployment rate will decline from 5.5 percent in 2021 to 3.8 percent in 2024. The annual-average projections for 2021 and 2022 are each 0.4 percentage point below those of the last survey.

The forecasters are also more optimistic about the employment outlook. They have revised upward their estimates for job gains in 2021 and 2022. The projections for the annual-average level of nonfarm payroll employment suggest job gains at a monthly rate of 331,600 in 2021 and 405,100 in 2022, up from the projections of 223,400 and 329,800, respectively, from three months ago. (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:
2021:Q2 5.0 7.9 6.1 5.8 396.1 570.6
2021:Q3 5.3 7.5 5.7 5.3 445.8 753.0
2021:Q4 4.0 5.0 5.4 4.9 565.8 482.4
2022:Q1 3.7 4.0 5.1 4.7 441.4 372.3
2022:Q2 N.A. 2.6 N.A. 4.5 N.A. 287.0
Annual data (projections are based on annual-average levels):
2021 4.5 6.3 5.9 5.5 223.4 331.6
2022 3.7 4.3 4.8 4.4 329.8 405.1
2023 3.1 2.6 4.2 3.9 N.A. N.A.
2024 2.5 2.3 4.0 3.8 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 over each of the next four years.

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 four years, compared with their previous estimates.

Forecasters Raise Their Projections for Inflation

The forecasters expect higher inflation, both in the short run and over the long run, for the survey’s four measures of inflation, compared with their previous estimates. They predict current-quarter headline CPI inflation to average 3.2 percent, up from 2.1 percent in the last survey. Headline PCE inflation over the current quarter will be 3.0 percent, up 1.2 percentage points from the previous estimate.

Notably, projections for headline and core CPI and PCE inflation at all other forecast horizons have been revised upward, compared with those from the survey of three months ago.

Over the next 10 years, 2021 to 2030, the forecasters expect headline CPI inflation to average 2.30 percent at an annual rate. The corresponding estimate for 10-year annual-average PCE inflation is 2.10 percent. These 10-year projections are slightly 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:Q2 2.1 3.2 2.1 2.5 1.8 3.0 1.8 2.5
2021:Q3 2.1 2.6 2.1 2.5 1.9 2.4 1.9 2.2
2021:Q4 2.2 2.4 2.1 2.3 2.0 2.2 1.9 2.0
2022:Q1 2.2 2.3 2.1 2.1 2.0 2.1 1.9 2.0
2022:Q2 N.A. 2.2 N.A. 2.2 N.A. 2.1 N.A. 2.0
Q4/Q4 Annual Averages
2021 2.2 3.0 2.0 2.1 2.0 2.8 1.8 2.3
2022 2.2 2.3 2.1 2.2 1.9 2.2 1.9 2.0
2023 2.2 2.3 2.2 2.3 2.0 2.2 2.0 2.1
Long-Term Annual Averages
2021-2025 2.20 2.40 N.A. N.A. 2.00 2.20 N.A. N.A.
2021-2030 2.20 2.30 N.A. N.A. 2.03 2.10 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 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 both years, the forecasters have raised their estimates for the probability that core PCE inflation will be 2.0 percent or more, compared with their estimates from three months ago.

Small (and Lower) Risk of a Negative Quarter

The forecasters expect only a small chance of a contraction in real GDP in any of the next five quarters, and these updated estimates are below those of the previous survey. They have cut their estimate of the risk of a downturn this quarter to 4.0 percent, compared with 12.7 percent in the survey of three months ago. The panelists 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
2021:Q2 12.7 4.0
2021:Q3 12.3 7.3
2021:Q4 12.9 10.1
2022:Q1 14.1 12.1
2022:Q2 N.A. 13.3

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. Ranosova, 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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