Forecasters Make Upward Revisions to Near-Term Growth and Job Gains

The U.S. economy for the next three quarters looks stronger now than it did three months ago, according to 37 forecasters surveyed by the Federal Reserve Bank of Philadelphia. The panel predicts real GDP will grow at an annual rate of 1.9 percent this quarter, up from the prediction of 0.6 percent in the last survey. Over the next two quarters, the forecasters also see higher 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 2.1 percent in 2023 and 1.3 percent in 2024. These annual projections are higher than the previous estimates of three months ago.

Downward revisions to the projections for the unemployment rate accompany the upward revisions to growth. Although the forecasters predict the unemployment rate will increase from 3.6 percent this quarter to 4.0 percent in the second quarter of 2024, these predictions mark downward revisions from those of the previous survey. On an annual-average basis, the panelists expect the unemployment rate to average 3.6 percent in 2023, compared with 3.7 percent in the previous survey. The annual-average projections beyond 2023 are also lower than those of the last survey.

On the employment front, the forecasters revised upward their estimate for job growth over the next four quarters. The projections for the annual-average level of nonfarm payroll employment suggest job gains at a monthly rate of 288,600 in 2023 and 94,800 in 2024. (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:
2023:Q3 0.6 1.9 3.8 3.6 43.8 168.6
2023:Q4 -0.0 1.2 4.0 3.7 25.6 103.7
2024:Q1 1.0 1.1 4.1 3.9 37.2 56.5
2024:Q2 2.5 1.0 4.2 4.0 22.7 78.0
2024:Q3 N.A. 1.3 N.A. 4.1 N.A. 77.9
Annual data (projections are based on annual-average levels):
2023 1.3 2.1 3.7 3.6 257.5 288.6
2024 1.0 1.3 4.3 4.0 56.1 94.8
2025 2.4 2.1 4.4 4.2 N.A. N.A.
2026 2.3 1.7 4.3 4.1 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 have assigned a higher probability than they assigned in the last survey that growth will be 1.5 percent or higher over each of the next four years, from 2023 to 2026.

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. Over each of the following four years, 2023 to 2026, the forecasters see a higher probability than they predicted three months ago that unemployment will fall into the range of 3.0 percent to 3.9 percent.

Forecasters Cut Their Estimates for Headline CPI and PCE Inflation in 2023

The forecasters expect headline CPI inflation in 2023 will average 3.1 percent, down from the prediction of 3.4 percent in the previous survey. Headline PCE inflation in 2023 will average 3.0 percent, also down from the previous estimate of 3.4 percent. Notably, the forecasters are leaving their estimates unchanged for the core measures of inflation in 2023.

Estimates for headline and core CPI and PCE inflation at most other annual forecast horizons beyond 2023 are little changed from the estimates of three months ago.

Over the next 10 years, 2023 to 2032, the forecasters expect headline CPI inflation to average 2.40 percent at an annual rate, slightly higher than the estimate of the previous survey. The corresponding estimate for 10-year annual-average PCE inflation is 2.20 percent, unchanged from 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
2023:Q3 3.2 3.1 3.6 3.6 3.2 2.7 3.3 3.3
2023:Q4 2.9 2.9 3.1 3.2 2.9 2.8 2.9 2.8
2024:Q1 2.7 2.6 3.0 2.9 2.5 2.5 2.5 2.6
2024:Q2 2.4 2.5 2.7 2.7 2.4 2.5 2.4 2.5
2024:Q3 N.A. 2.6 N.A. 2.6 N.A. 2.4 N.A. 2.3
Q4/Q4 Annual Averages
2023 3.4 3.1 4.1 4.1 3.4 3.0 3.7 3.7
2024 2.5 2.5 2.7 2.7 2.4 2.4 2.3 2.4
2025 2.3 2.4 2.3 2.3 2.1 2.2 2.0 2.1
Long-Term Annual Averages
2023-2027 2.50 2.68 N.A. N.A. 2.42 2.50 N.A. N.A.
2023-2032 2.36 2.40 N.A. N.A. 2.20 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 provide perspective on the current survey’s slightly higher projection for long-term CPI inflation and the unchanged projection for long-term PCE inflation.

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 2023 and 2024. Notably, the forecasters have significantly lowered their estimates for the probability that core PCE inflation in 2023 will be 4.0 percent or more, compared with their predictions in the previous survey.

Lower Risk of a Negative Quarter

The forecasters have slashed their estimate of the risk of a downturn in real GDP this quarter to 21.7 percent, compared with the estimate of 45.2 percent in the survey of three months ago. The panelists have also made sizable downward revisions to their probability estimates for the following two quarters.

Risk of a Negative Quarter (%)
Survey Means

Quarterly data: Previous New
2023:Q3 45.2 21.7
2023:Q4 41.9 34.4
2024:Q1 39.3 37.6
2024:Q2 31.8 35.4
2024:Q3 N.A. 34.4

Natural Rate of Unemployment Estimated at 4.00 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 estimate this rate at 4.00 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-two percent of the 33 forecasters who answered the question report that they use the natural rate in their forecasts. The lowest estimate is 3.75 percent, and the highest estimate is 4.55 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
2023:Q3  42  4.00 3.75 4.55

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:

William Adams, Comerica Bank; Ed Al-Hussainy and Alexander Spitz, 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.; Jay Bryson, Wells Fargo; Christine Chmura, Ph.D., and Xiaobing Shuai, Ph.D., Chmura Economics & Analytics; Gary Ciminero, CFA, GLC Financial Economics; Grant Collins, AIM Research, LLC; Rajeev Dhawan, Georgia State University; Bill Diviney, ABN AMRO Bank NV; Gabriel Ehrlich, Daniil Manaenkov, Tereza Ranosova, and Yinuo Zhang, RSQE, University of Michigan; Michael R. Englund, Action Economics, LLC; Michael Feroli, J.P. Morgan; Tani Fukui and Shan Ahmed, MetLife Investment Management; Sacha Gelfer, Bentley University; James Glassman, Independent Economist; Jan Hatzius, Goldman Sachs; Steve Kihm, Citizens Utility Board of Wisconsin; Oren Klachkin and Ryan Sweet, Oxford Economics USA, Inc.; Jack Kleinhenz, Kleinhenz & Associates, Inc.; Yaniv Konchitchki, University of California, Berkeley; Thomas Lam, Sim Kee Boon Institute, Singapore Management University; Brian Martin, Australia New Zealand Bank (ANZ); Robert McNab, Old Dominion University; R. Anthony Metz, Pareto Optimal Economics; R. M. Monaco, TitanRM; 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; Michael Roberts, Dan Roberts, and Jeffrey Baldwin, Roberts Capital Advisors, LLC; Alfredo A. Romero, North Carolina A&T State University; Philip Rothman, East Carolina University; Allen Sinai and Boyang Tian, Decision Economics, Inc.; Sean Snaith, University of Central Florida; Stephen Stanley, Santander US Capital Markets; Charles Steindel, Editor, NABE Business Economics; Susan M. Sterne, Economic Analysis Associates, Inc.; Edward Sullivan, Portland Cement Association; James Sweeney, Credit Suisse; Jordan Vickers and Marie Dempsey, Eaton Corporation; Lawrence Werther, Daiwa Capital Markets America; 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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