Research >> Economics
Forecasters See Weaker Outlook for Growth and Lower Unemployment
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The outlook for growth in the U.S. economy over the next three years looks slightly weaker overall than that of three months ago, according to 39 forecasters surveyed by the Federal Reserve Bank of Philadelphia. The panel expects real GDP to grow at an annual rate of 2.6 percent this quarter and 2.3 percent next quarter. On an annual-average over annual-average basis, the forecasters see real GDP growing 2.1 percent in 2017, unchanged from the previous survey. The forecasters predict real GDP will grow 2.4 percent in 2018, 2.2 percent in 2019, and 2.0 percent in 2020.
All of the projections for unemployment were revised slightly downward in comparison with the May 2017 survey. The forecasters predict the unemployment rate will be an annual average of 4.4 percent in 2017, before falling to 4.2 percent in 2018, and then increasing slightly to 4.3 percent for 2019, and remaining steady at 4.3 percent in 2020.
On the employment front, the forecasters have revised downward their estimates for job gains in 2017 but increased their estimates for job gains in 2018. The forecasters’ projections for the annual-average level of nonfarm payroll employment suggest job gains at a monthly rate of 180,400 in 2017, down from the previous estimate of 182,600, and 165,800 in 2018, up from the previous estimate of 162,800. (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.)
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. For 2017, the panelists are more certain now than they were in the previous survey that real GDP growth will fall between 2.0 percent and 2.9 percent. For 2018, 2019, and 2020, the probabilities are also slightly higher now than they were in the survey of three months ago for real GDP growth between 2.0 percent and 2.9 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 estimates of the probability that unemployment will fall into each of 10 ranges. The charts show the forecasters are more certain now than they were three months ago that unemployment over the next four years will average between 4.0 percent and 4.9 percent.
Short-Term CPI and PCE Inflation Revised Downward Overall
Measured on a fourth-quarter over fourth-quarter basis, the inflation outlook is weaker for headline CPI inflation and headline PCE inflation. Headline CPI inflation is expected to average 1.7 percent in 2017, 2.2 percent in 2018, and 2.3 percent in 2019. The projections for headline PCE inflation are 1.5 percent for the current year, 1.9 percent for 2018, and 2.0 percent for 2019.
Over the next 10 years, 2017 to 2026, the forecasters expect headline CPI inflation to average 2.25 percent at an annual rate, down slightly from their previous estimate of 2.30 percent. The corresponding estimate for 10-year annual-average PCE inflation is 2.00 percent, also slightly down from the previous estimate of 2.09 percent.
The charts below show the median projections (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 top and bottom panels highlight marginally lower levels of the long-term projection for CPI inflation and PCE inflation, respectively.
The figures below show the probabilities that the forecasters are assigning to the possibility that fourth-quarter over fourth-quarter core PCE inflation in 2017 and 2018 will fall into each of 10 ranges. For 2017 and 2018, the forecasters assign a higher chance than they previously predicted that core PCE inflation will be between 1.5 percent to 1.9 percent.
Risk of Decline in Real GDP Remains Low for 2017 and 2018
The forecasters see only a small chance of a contraction in real GDP in any of the next five quarters. For the current quarter, they predict a 6.7 percent chance of negative growth, down from 10.9 percent in the survey of three months ago. The forecasters see a lower probability of a negative quarter in 2017 and 2018 than they estimated three months ago.
Natural Rate of Unemployment Estimated at 4.5 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 4.50 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-four percent of the 34 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 5.00 percent.
Posted: August 11, 2017 Friday 10:00 AM