Lower Current-Quarter Growth, Followed by Stronger Growth over Subsequent Quarters

The U.S. economy for the current quarter looks weaker 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 6.8 percent this quarter, down 0.7 percentage point from the prediction in the last survey. Over the next three quarters, however, the panelists see stronger 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 6.1 percent in 2021 and 4.4 percent in 2022.

The projections for unemployment are little changed from those of the previous survey. On an annual-average basis, the forecasters predict the unemployment rate will decline from 5.6 percent in 2021 to 3.6 percent in 2024.

The employment outlook mirrors the outlook for output growth. The forecasters revised downward their estimate for job growth for the current quarter and revised upward their estimates for the next three quarters. The projections for the annual-average level of nonfarm payroll employment suggest job gains at a monthly rate of 309,400 in 2021 and 456,300 in 2022. (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:Q3 7.5 6.8 5.3 5.3 753.0 695.1
2021:Q4 5.0 5.2 4.9 4.9 482.4 508.8
2022:Q1 4.0 4.5 4.7 4.6 372.3 468.9
2022:Q2 2.6 3.4 4.5 4.4 287.0 404.8
2022:Q3 N.A. 2.7 N.A. 4.2 N.A. 265.0
Annual data (projections are based on annual-average levels):
2021 6.3 6.1 5.5 5.6 331.6 309.4
2022 4.3 4.4 4.4 4.3 405.1 456.3
2023 2.6 2.5 3.9 3.8 N.A. N.A.
2024 2.3 2.0 3.8 3.6 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. Notably, for 2021, the forecasters have significantly revised upward their estimate of the probability that real GDP will grow at a rate of 4.0 percent to 6.9 percent.

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 are raising their probability estimates for an unemployment rate between 5.0 percent and 5.9 percent in 2021. The unemployment density projections for the following three years are little changed, compared with their previous estimates.

Forecasters Raise Their Projections for Inflation

The forecasters expect current-quarter headline CPI inflation to average 5.2 percent, up from 2.6 percent in the last survey. Headline PCE inflation over the current quarter will be 4.0 percent, up 1.6 percentage points from the previous estimate.

Projections for headline and core CPI and PCE inflation at most 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 predict headline CPI inflation will average 2.44 percent at an annual rate. The corresponding estimate for 10-year annual-average PCE inflation is 2.20 percent. These 10-year projections are 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:Q3 2.6 5.2 2.5 5.1 2.4 4.0 2.2 3.7
2021:Q4 2.4 2.6 2.3 2.5 2.2 2.6 2.0 2.2
2022:Q1 2.3 2.2 2.1 2.3 2.1 2.3 2.0 2.1
2022:Q2 2.2 2.3 2.2 2.3 2.1 2.2 2.0 2.1
2022:Q3 N.A. 2.4 N.A. 2.4 N.A. 2.2 N.A. 2.2
Q4/Q4 Annual Averages
2021 3.0 4.9 2.1 4.2 2.8 4.1 2.3 3.7
2022 2.3 2.4 2.2 2.4 2.2 2.2 2.0 2.2
2023 2.3 2.3 2.3 2.4 2.2 2.3 2.1 2.1
Long-Term Annual Averages
2021-2025 2.40 2.75 N.A. N.A. 2.20 2.40 N.A. N.A.
2021-2030 2.30 2.44 N.A. N.A. 2.10 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 highlight the rising projections for the long-term inflation rate 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 2021 and 2022. For both years, the forecasters have raised their estimates for the probability that core PCE inflation will be 3.0 percent or more, compared with their estimates from three months ago.

Lower Risk of a Negative Quarter

The forecasters expect only a small likelihood of a contraction in real GDP in any of the next five quarters, and these new estimates are slightly below those of the previous survey. The forecasters have cut their estimate of the risk of a downturn this quarter to 5.7 percent, compared with 7.3 percent in the survey of three months ago. The panelists have also reduced their probability estimates for the following three quarters, compared with their previous estimates.

Risk of a Negative Quarter (%)
Survey Means

Quarterly data: Previous New
2021:Q3 7.3 5.7
2021:Q4 10.1 9.5
2022:Q1 12.1 12.0
2022:Q2 13.3 12.3
2022:Q3 N.A. 12.9

Natural Rate of Unemployment Estimated at 3.78 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 3.78 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. Thirty-seven percent of the 27 forecasters who answered the question report that they use the natural rate in their forecasts. The lowest estimate is 3.00 percent, and the highest estimate is 4.25 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
2021:Q3  37  3.78 3.00 4.25

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; 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.; 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; 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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