Forecasters See Slower Growth

The U.S. economy looks weaker now than it did three months ago, according to 35 forecasters surveyed by the Federal Reserve Bank of Philadelphia. The panel predicts real GDP will grow at an annual rate of 1.4 percent this quarter, down from the prediction of 2.5 percent in the last survey. Over the next three quarters, the panelists also see slower 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 1.6 percent in 2022 and 1.3 percent in 2023. These annual projections are lower than the estimates of three months ago.

Upward revisions beginning from the fourth quarter of this year to the projections for the unemployment rate accompany the outlook for growth. On an annual-average basis, the forecasters predict the unemployment rate will increase from 3.7 percent in 2022 to 3.9 percent in 2023 and remain at the same rate over the following two years.

On the employment front, the forecasters revised upward their estimate for job growth for the current quarter but revised downward their estimates for the next two quarters. The projections for the annual-average level of nonfarm payroll employment suggest job gains at a monthly rate of 487,500 in 2022 and 167,600 in 2023. (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:Q3 2.5 1.4 3.5 3.5 293.7 342.5
2022:Q4 2.3 1.2 3.5 3.7 193.2 167.9
2023:Q1 2.1 1.1 3.5 3.8 158.8 89.0
2023:Q2 2.3 1.5 3.5 3.9 61.3 96.6
2023:Q3 N.A. 1.5 N.A. 4.0 N.A. 80.7
Annual data (projections are based on annual-average levels):
2022 2.5 1.6 3.6 3.7 479.7 487.5
2023 2.3 1.3 3.6 3.9 172.7 167.6
2024 2.0 2.3 3.8 3.9 N.A. N.A.
2025 2.3 2.1 3.8 3.9 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 expect a lower probability than they predicted in the last survey that growth will be 2.5 percent or higher in 2022 and 2023.

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 2022, the forecasters are increasing their probability estimates from the last survey 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 three months ago that unemployment will fall into the ranges of 4.0 percent or higher.

Forecasters Raise Their Projections for Inflation

The forecasters expect current-quarter headline CPI inflation will average 6.7 percent at an annual rate, up from the prediction of 4.5 percent in the previous survey. Headline PCE inflation over the current quarter will also be higher at an annual rate of 5.3 percent, up from the last estimate of 4.1 percent.

Projections for headline and core CPI and PCE inflation at most other forecast horizons have been revised upward, compared with those of the previous survey.

Over the next 10 years, 2022 to 2031, the forecasters predict headline CPI inflation will remain unchanged from their previous estimate, at an annual-average rate of 2.80 percent. The corresponding estimate for 10-year annual-average PCE inflation is 2.45 percent, slightly higher than the previous estimate.

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:Q3 4.5 6.7 4.1 5.8 4.1 5.3 3.8 4.6
2022:Q4 3.7 4.3 3.5 4.6 3.0 3.7 3.2 3.5
2023:Q1 3.1 3.6 3.1 3.7 2.7 2.9 2.8 3.1
2023:Q2 3.0 3.4 2.9 3.2 2.6 2.8 2.7 2.8
2023:Q3 N.A. 3.0 N.A. 2.8 N.A. 2.5 N.A. 2.6
Q4/Q4 Annual Averages
2022 6.1 7.5 4.8 5.9 5.0 5.8 4.1 4.5
2023 2.9 3.2 2.9 3.1 2.5 2.8 2.5 2.8
2024 2.3 2.5 2.5 2.5 2.2 2.3 2.2 2.2
Long-Term Annual Averages
2022-2026 3.40 3.50 N.A. N.A. 2.90 3.00 N.A. N.A.
2022-2031 2.80 2.80 N.A. N.A. 2.40 2.45 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 upward trend in 10-year inflation expectations 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. Notably, the forecasters have significantly increased their estimates for the probability that core PCE inflation in 2022 will be 4.0 percent or more, compared with their prediction in the previous survey.

Higher Risk of a Decrease in Real GDP

The forecasters see about a one-in-three chance of a contraction in real GDP in any of the next five quarters. The forecasters have increased their estimate of the risk of a downturn this quarter to 33.9 percent, compared with 19.7 percent in the survey of three months ago. The panelists have also raised their probability estimates for the following three quarters.

Risk of a Negative Quarter (%)
Survey Means

Quarterly data: Previous New
2022:Q3 19.7 33.9
2022:Q4 22.2 36.0
2023:Q1 28.2 38.0
2023:Q2 25.5 36.5
2023:Q3 N.A. 34.1

Natural Rate of Unemployment Estimated at 4.10 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. Thirty 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 4.50 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
2022:Q3  30  4.10 3.50 4.50

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; 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; Joel Prakken and Chris Varvares, S&P Global Market Intelligence; Jason Prole, Capital Risk Management; Philip Rothman, East Carolina University; 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 and Jordan Vickers, 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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