Forecasters Predict Slower Growth

The outlook for the U.S. economy looks weaker now than it did three months ago, according to 34 forecasters surveyed by the Federal Reserve Bank of Philadelphia. The forecasters predict real GDP will grow at an annual rate of 2.3 percent in the current quarter, down 1.9 percentage points from the prediction of 4.2 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 2.5 percent this year, 2.3 percent in 2023, and 2.0 percent in 2024. These annual projections are lower than the estimates of three months ago.

Some upward revisions starting in 2023 to the projections for the unemployment rate accompany the outlook for growth. The forecasters expect the unemployment rate to be 3.6 percent this quarter and 3.5 percent for the following four quarters. Using the annual-average computation, the panelists predict the unemployment rate will be 3.6 percent in 2022 and 2023 and move slightly higher to 3.8 percent over the next two years. The annual-average projections beyond 2022 are higher now than they were previously.

The forecasters have revised upward their estimates for job gains for the current quarter and in 2022. On an annual basis, the projections for the annual-average level of nonfarm payroll employment suggest job gains at a monthly rate of 479,700 in 2022, nearly 50,000 more jobs than in 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:Q2 4.2 2.3 3.7 3.6 357.0 381.3
2022:Q3 3.0 2.5 3.6 3.5 257.0 293.7
2022:Q4 2.9 2.3 3.5 3.5 225.4 193.2
2023:Q1 2.8 2.1 3.4 3.5 144.8 158.8
2023:Q2 N.A. 2.3 N.A. 3.5 N.A. 61.3
Annual data (projections are based on annual-average levels):
2022 3.7 2.5 3.7 3.6 430.9 479.7
2023 2.7 2.3 3.4 3.6 197.2 172.7
2024 2.3 2.0 3.6 3.8 N.A. N.A.
2025 2.3 2.3 3.7 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 forecasters see a lower probability than they predicted in the previous survey that growth will be 2.5 percent or higher 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 and previous estimates of the probability that unemployment will fall into each of 10 ranges. The projections for 2022 show the panelists are raising their probability estimates for an unemployment rate in the range of 3.0 to 3.9 percent. Over each of the following three years, from 2023 to 2025, the forecasters see a higher probability than they predicted in the previous survey that unemployment will fall into the ranges of 4.0 percent or higher.

Forecasters See Higher Inflation

The forecasters predict current-quarter headline CPI inflation will average 7.1 percent at an annual rate, up from the forecast of 3.8 percent in the last survey. Headline PCE inflation over the current quarter will be 5.7 percent at an annual rate, up from the previous forecast of 3.1 percent.

Projections for headline and core CPI and PCE inflation in 2022 and 2023 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 2.80 percent at an annual rate. The corresponding estimate for 10-year annual-average PCE inflation is 2.40 percent. These 10-year projections are 0.3 percentage point and 0.2 percentage point, respectively, 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
2022:Q2 3.8 7.1 3.6 5.1 3.1 5.7 3.1 4.3
2022:Q3 2.7 4.5 3.1 4.1 2.6 4.1 2.5 3.8
2022:Q4 2.7 3.7 2.6 3.5 2.4 3.0 2.3 3.2
2023:Q1 2.5 3.1 2.5 3.1 2.3 2.7 2.3 2.8
2023:Q2 N.A. 3.0 N.A. 2.9 N.A. 2.6 N.A. 2.7
Q4/Q4 Annual Averages
2022 3.8 6.1 3.6 4.8 3.1 5.0 3.1 4.1
2023 2.4 2.9 2.5 2.9 2.2 2.5 2.2 2.5
2024 2.3 2.3 2.4 2.5 2.2 2.2 2.2 2.2
Long-Term Annual Averages
2022-2026 2.70 3.40 N.A. N.A. 2.40 2.90 N.A. N.A.
2022-2031 2.50 2.80 N.A. N.A. 2.20 2.40 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 highlight the upward trend for 10-year inflation in recent surveys.

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 4.0 percent or higher, compared with their estimates of three months ago.

Higher Risk of Negative Real GDP Growth

The forecasters have revised upward the chance of a contraction in real GDP in any of the next four quarters. For the current quarter, the forecasters predict a 19.6 percent chance of negative growth, up from 14.8 percent in the survey of three months ago. The panelists have also made upward revisions to their probability estimates for the following three quarters.

Risk of a Negative Quarter (%)
Survey Means

Quarterly data: Previous New
2022:Q2 14.8 19.6
2022:Q3 17.5 19.7
2022:Q4 16.3 22.2
2023:Q1 18.1 28.2
2023:Q2 N.A. 25.5

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:

Ed Al-Hussainy and Anwiti Bahuguna, Columbia Threadneedle Investments; 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.; Kathy Bostjancic, Oxford Economics USA, Inc.; Jay Bryson, Wells Fargo; Christine Chmura, Ph.D., and Xiaobing Shuai, Ph.D., Chmura Economics & Analytics; Gary Ciminero, CFA, GLC Financial Economics; 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; Sam Kahan, Kahan Consulting Ltd. (ACT Research LLC); N. Karp, BBVA Research USA; Steve Kihm, Citizens Utility Board of Wisconsin; Jack Kleinhenz, Kleinhenz & Associates, Inc.; Yaniv Konchitchki, University of California, Berkeley; Thomas Lam, Sim Kee Boon Institute, Singapore Management University; John Lonski, Moody’s Capital Markets Group; Matthew Luzzetti, Deutsche Bank Securities; 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., American Financial Services Association (AFSA); Jason Prole, Capital Risk Management; Philip Rothman, East Carolina University; S&P Global Market Intelligence; Allen Sinai and Lu Yu, Decision Economics, 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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