Higher Growth in the Current Quarter

The outlook for the U.S. economy in the current quarter looks brighter now than it did three months ago, according to 35 forecasters surveyed by the Federal Reserve Bank of Philadelphia. The forecasters predict the economy will expand at an annual rate of 19.1 percent this quarter, much stronger than the prediction of 10.6 percent from the last survey. On an annual-average over annual-average basis, the forecasters expect real GDP to decrease 5.2 percent this year but to recover and grow at an annual rate of between 2.2 percent to 3.5 percent over each of the following three years.

A downward revision to the projection for the unemployment rate accompanies the outlook for growth. The forecasters predict unemployment will decrease from a projected 10.0 percent this quarter to 7.8 percent in the third quarter of 2021. On an annual-average basis, the panelists predict the unemployment rate will decline from a projected 9.0 percent in 2020 to 5.3 percent in 2023. The prediction for the annual-average unemployment rate in 2020 is 1.8 percentage points lower than that of the last survey.

On the employment front, the forecasters expect job gains in the current quarter at a rate of 2,068,600 per month. The employment projections for the current and the following three quarters mark downward revisions from those of the previous survey. The projections for the annual-average level of nonfarm payroll employment suggest job losses at a monthly rate of 770,000 in 2020 and job gains at a monthly rate of 269,800 in 2021. (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:
2020:Q3    10.6  19.1    12.9 10.0   2,328.9  2,068.6
2020:Q4   6.5 5.8   11.0 9.5   900.9 398.5
2021:Q1   6.8 5.2   9.3 9.0   514.9 363.5
2021:Q2   4.1 3.8   8.8 8.4   739.1 200.5
2021:Q3   N.A. 3.6   N.A. 7.8   N.A. 286.0
Annual data (projections are based on annual-average levels):
2020   -5.6 -5.2   10.8 9.0   -933.3 -770.0
2021   3.1 3.2   8.1 8.0   314.4 269.8
2022   4.1 3.5   6.2 6.0   N.A. N.A.
2023   2.2 2.2   5.1 5.3   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’ current and previous estimates of the probability that growth will fall into each of 11 ranges.

The forecasters have revised downward their estimate of the probability that growth will fall below -6 percent in 2020. For the following three years, the charts show that the estimates of uncertainty have changed little from those of 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 panelists have revised upward their estimate of the probability that the unemployment rate will be in the range of 7.0 to 9.9 percent in 2020, 2021, and 2022.

Higher Current-Quarter Inflation, but 10-Year Annual-Average Inflation at Historical Lows

The forecasters predict current-quarter headline CPI inflation to average 2.3 percent, up from 1.5 percent in the last survey. Headline PCE inflation for the current quarter will be 1.6 percent, up 0.3 percentage point from the previous estimate.

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

Over the next 10 years, 2020 to 2029, the forecasters expect headline CPI inflation to average 2.03 percent at an annual rate. The corresponding estimate for 10-year annual-average PCE inflation is 1.85 percent. Notably, both 10-year annual-average inflation measures stand at their historical lows for the 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
2020:Q3   1.5 2.3   1.5 1.6   1.3 1.6   1.3 1.5
2020:Q4   1.9 1.6   1.6 1.5   1.6 1.2   1.4 1.3
2020:Q1   2.0 1.8   1.7 1.6   1.6 1.5   1.6 1.5
2021:Q2   2.0 1.6   1.8 1.8   1.6 1.5   1.7 1.5
2021:Q3   N.A. 2.1   N.A. 1.8   N.A. 1.8   N.A. 1.7
Q4/Q4 Annual Averages
2020   0.5 0.4   1.5 0.9   0.8 0.6   1.3 0.8
2021   1.9 1.8   1.8 1.8   1.7 1.6   1.6 1.5
2022   2.2 2.0   2.0 1.9   1.8 1.7   1.8 1.7
Long-Term Annual Averages
2020-2024   2.00 1.90   N.A. N.A.   1.70 1.70   N.A. N.A.
2020-2029   2.14 2.03   N.A. N.A.   1.87 1.85   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 lowered 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 2020 and 2021. For both years, the forecasters have increased the probability that core PCE inflation will be below 1.0 percent.

Lower Risk of a Negative Quarter

The forecasters have revised downward the chance of a contraction in real GDP in any of the next three quarters. For the current quarter, the forecasters predict an 11.9 percent chance of negative growth, down from 43.8 percent in the survey of three months ago.

Risk of a Negative Quarter (%) Survey Means

Quarterly data: Previous New
2020:Q3 43.8 11.9
2020:Q4 27.2 20.4
2020:Q1 22.3 19.2
2021:Q2 18.1 18.6
2021:Q3 N.A. 17.1

Natural Rate of Unemployment Estimated at 4.1 Percent

In third-quarter surveys, we ask the forecasters to provide their estimates of the natural rate of unemployment — the rate of unemployment that occurs when the economy reaches equilibrium. The forecasters peg this rate at 4.10 percent. The table below shows, for each third-quarter survey since 1996, the percentage of respondents who use the natural rate in their forecasts and, for those who use it, the median estimate and the lowest and highest estimates. Forty-eight percent of the 27 forecasters who answered the question report that they use the natural rate in their forecasts. The lowest estimate is 3.50 percent, and the highest estimate is 6.00 percent.

Median Estimates of the Natural Rate of Unemployment

Survey Date Percentage Who
Use the
Natural Rate
Median Estimate (%) Low (%) High (%)
1996:Q3 62 5.65 5.00 6.00
1997:Q3 59 5.25 4.50 5.88
1998:Q3 45 5.30 4.50 5.80
1999:Q3 43 5.00 4.13 5.60
2000:Q3 48 4.50 4.00 5.00
2001:Q3 34 4.88 3.50 5.50
2002:Q3 50 5.10 3.80 5.50
2003:Q3 41 5.00 4.31 5.40
2004:Q3 46 5.00 4.00 5.50
2005:Q3 50 5.00 4.25 5.50
2006:Q3 53 4.95 4.00 5.50
2007:Q3 52 4.65 4.20 5.50
2008:Q3 48 5.00 4.00 5.50
2009:Q3 45 5.00 4.00 6.00
2010:Q3 50 5.78 4.50 6.80
2011:Q3 42 6.00 4.75 7.00
2012:Q3 49 6.00 4.75 7.00
2013:Q3 63 6.00 4.75 7.00
2014:Q3 65 5.50 4.50 6.70
2015:Q3 62 5.00 4.25 5.80
2016:Q3 56 4.80 4.50 5.50
2017:Q3 44 4.50 3.50 5.00
2018:Q3 34 4.30 3.80 4.60
2019:Q3 33 4.10 3.88 4.60
2020:Q3  48  4.10 3.50 6.00

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; J. Burton, G. Ehrlich, D. Manaenkov, W. Song, and A. Thapar, RSQE, University of Michigan; 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; Michael R. Englund, Action Economics, LLC; Michael Gapen, Barclays Capital; Sacha Gelfer, Bentley University; James Glassman, JPMorgan Chase & Co.; Jan Hatzius, Goldman Sachs; Brian Higginbotham, U.S. Chamber of Commerce; Peter Hooper, Deutsche Bank Securities, Inc.; 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.; Thomas Lam, Sim Kee Boon Institute, Singapore Management University; John Lonski, Moody’s Capital Markets Group; 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/Montclair State University; 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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