Slower Near-Term Growth but Brighter Outlook for Employment

The outlook for real GDP growth in the next few quarters looks weaker now than it did three months ago, according to 37 forecasters surveyed by the Federal Reserve Bank of Philadelphia. The forecasters predict the economy will expand at an annual rate of 4.0 percent this quarter, lower than the prediction of 5.8 percent from the previous survey. On an annual-average over annual-average basis, the forecasters expect real GDP to decrease 3.5 percent this year but to recover and grow at an annual rate of between 2.1 percent to 4.0 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 7.0 percent this quarter to 5.8 percent in the fourth quarter of 2021. The prediction for the current-quarter unemployment rate is 2.5 percentage points lower than that of the last survey. On an annual-average basis, the panelists predict the unemployment rate will decline from a projected 8.2 percent in 2020 to 4.6 percent in 2023.

On the employment front, the forecasters expect job gains in the current quarter at a rate of 689,800 per month. The employment projections for the current and the following three quarters show upward 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 718,000 in 2020 and job gains at a monthly rate of 321,600 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:Q4  5.8 4.0   9.5 7.0    398.5 689.8
2021:Q1 5.2 3.2   9.0 6.7   363.5 471.6
2021:Q2 3.8 3.5   8.4 6.5   200.5 423.8
2021:Q3 3.6 3.5   7.8 6.1   286.0 444.5
2021:Q4 N.A. 3.3   N.A. 5.8   N.A. 399.5
Annual data (projections are based on annual-average levels):
2020 -5.2 -3.5   9.0 8.2   -770.0 -718.0
2021 3.2 4.0   8.0 6.3   269.8 321.6
2022 3.5 3.0   6.0 5.2   N.A. N.A.
2023 2.2 2.1   5.3 4.6   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’ current and previous estimates of the probability that growth will fall into each of 11 ranges.

In 2020 and over the following three years, the charts show the panelists are raising their probability estimates at the higher levels of growth.

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.

In each of the four years shown in the charts, the forecasters are raising their probability estimates at the lower levels of unemployment.

Forecasters See Higher Inflation

The forecasters predict current-quarter headline CPI inflation will average 2.0 percent, up from 1.6 percent in the last survey. Headline PCE inflation for the current quarter will be 1.7 percent, up 0.5 percentage point from the survey of three months ago. Projections for all measures of CPI and PCE inflation at all other forecast horizons have mostly been revised upward, compared with those in the previous survey.

Over the next 10 years, 2020 to 2029, the forecasters expect headline CPI inflation to average 2.12 percent at an annual rate. The corresponding estimate for 10-year annual-average PCE inflation is 1.90 percent. Both 10-year annual-average inflation measures are slightly higher than their corresponding measures of three months ago.

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:Q4 1.6 2.0 1.5 2.1 1.2 1.7 1.3 1.8
2021:Q1 1.8 2.0 1.6 1.8 1.5 1.8 1.5 1.7
2020:Q2 1.6 2.0 1.8 2.0 1.5 1.8 1.5 1.7
2021:Q3 2.1 2.1 1.8 1.9 1.8 2.0 1.7 1.8
2021:Q4 N.A. 2.2 N.A. 1.9 N.A. 1.9 N.A. 1.7
Q4/Q4 Annual Averages
2020 0.4 1.2 0.9 1.7 0.6 1.3 0.8 1.5
2021 1.8 2.0 1.8 1.9 1.6 1.9 1.5 1.8
2022 2.0 1.9 1.9 2.0 1.7 1.8 1.7 1.7
Long-Term Annual Averages
2020-2024 1.90 2.00 N.A. N.A. 1.70 1.79 N.A. N.A.
2020-2029 2.03 2.12 N.A. N.A. 1.85 1.90 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 slightly higher 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 see the most likely core PCE inflation range is that from 1.5 to 1.9 percent.

Lower Risk of a Negative Current Quarter

The forecasters have revised downward the chance of a contraction in real GDP in three of the next four quarters. For the current quarter, the forecasters predict a 16.4 percent chance of negative quarter-over-quarter growth, down from 20.4 percent in the survey of three months ago.

Risk of a Negative Quarter (%) Survey Means

Quarterly data: Previous New
2020:Q4 20.4 16.4
2021:Q1 19.2 20.4
2020:Q2 18.6 17.5
2021:Q3 17.1 14.4
2021:Q4 N.A. 13.9

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, and T. Ranoso, 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; Sacha Gelfer, Bentley University; James Glassman, JPMorgan Chase & Co.; Jan Hatzius, Goldman Sachs; Brian Higginbotham, U.S. Chamber of Commerce; 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.; Rohan Kumar, 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; 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, Inc.; 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; Gary Wagner, University of Louisiana at Lafayette; 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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