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Fourth Quarter 2009 Survey of Professional Forecasters

Listen to an interview with a research analyst about this quarter's survey. Audio Interview

Forecasters See the Expansion Continuing

The U.S. economy will grow over each of the next five quarters, according to 41 forecasters surveyed by the Federal Reserve Bank of Philadelphia. The forecasters see real GDP growing at an annual rate of 2.7 percent this quarter. On an annual-average over annual-average basis, forecasters see real GDP falling 2.5 percent in 2009 before rebounding in each of the following three years. Real GDP will grow 2.4 percent in 2010, 3.1 percent in 2011, and 3.3 percent in 2012. As the table below shows, these estimates are a bit higher than those the forecasters projected in last quarter's survey.

The labor market looks weaker now than it did three months ago. Unemployment is now seen at an annual average of 9.3 percent in 2009 and 10 percent in 2010, before falling to 9.2 percent in 2011 and 8.3 percent in 2012. These estimates mark upward revisions from the forecasters' previous projection. Likewise, growth in jobs looks weaker. The forecasters see nonfarm payroll employment falling at a rate of 160,000 jobs per month this quarter and 35,000 jobs per month next quarter. Both estimates mark downward revisions from the previous survey. The forecasters see jobs beginning to grow in the second quarter of 2010. Over the second half of the year, jobs will grow at a rate of 150,000 per month. The forecasters' projections for the annual average level of nonfarm payroll employment suggest job losses at a monthly rate of 427,000 in 2009 and a further loss of 70,000 per month in 2010. (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.)

 
Real GDP (%)
Unemployment
Rate (%)
Payrolls
(000s/month)
 
Previous
New
Previous
New
Previous
New
Quarterly data:
2009:Q4
2.2
2.7
9.9
10.2
-81.0
-159.5
2010:Q1
2.5
2.3
9.9
10.2
51.5
-35.0
Q2
2.8
2.4
9.8
10.1
61.5
57.6
Q3
2.6
2.6
9.6
10.0
90.8
158.6
Q4
N.A.
2.9
N.A.
9.8
N.A.
142.2
Annual average data:
2009
-2.6
-2.5
9.2
9.3
-415.7
-426.7
2010
2.3
2.4
9.6
10.0
-24.6
-69.8
2011
2.9
3.1
8.9
9.2
N.A.
N.A.
2012
3.2
3.3
8.0
8.3
N.A.
N.A.

The charts below provide some information on the degree of uncertainty the forecasters have about their projections for annual-average over annual-average growth in 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 raised their estimate of the probability that growth will fall into the range of -3.0 percent to -2.1 percent in 2009. In 2010, the forecasters see a higher probability that growth will fall in the higher ranges than they previously predicted. There is little change in the density projections for growth in 2011 and 2012.

The forecasters' density projections, as shown in the charts below, shed light on the odds of a recovery in the labor market over the next four years. Each chart presents the forecasters' previous and current estimates of the probability that unemployment will fall into each of 10 ranges. The forecasters have raised the estimate of the probability that the annual average unemployment rate will be in the range of 9.0 percent to 9.4 percent in 2009 compared with their previous estimate. The current estimate stands at nearly 75 percent. Over the remaining three years of the horizon, the panelists have raised their estimates of the probability that unemployment will fall into the higher ranges.

Reduced Expectations for Inflation at (Almost) All Horizons

The forecasters have cut their expectations for inflation at all but the shortest horizons. This covers the survey's headline and core measures of CPI and PCE inflation. Most notably, the forecasters see lower inflation at the 10-year annual-average horizon than they predicted in last quarter's survey, as shown in the table below.

Short-Run and Long-Run Projections for Inflation (Annualized Percentage Points)
Full Sample Results, Medians
 
Headline CPI
Core CPI
Headline PCE
Core PCE
Previous
Current
Previous
Current
Previous
Current
Previous
Current
Quarterly
2009:Q4
1.6
2.1
1.1
1.4
1.4
1.7
1.0
1.2
2010:Q1
1.7
1.5
1.5
1.2
1.4
1.5
1.2
1.0
Q2
1.9
1.5
1.5
1.4
1.8
1.2
1.3
1.2
Q3
2.0
1.8
1.6
1.5
1.9
1.8
1.3
1.4
Q4
N.A.
1.8
N.A.
1.5
N.A.
1.8
N.A.
1.4
Q4/Q4 Annual Averages
2009
0.7
1.1
1.7
1.7
0.9
1.1
1.4
1.4
2010
1.8
1.7
1.5
1.4
1.7
1.3*
1.3
1.3
2011
2.2
2.1
2.0
1.8
2.0
1.8
1.7
1.5
Long-Term Annual Averages
2009-2013
2.15
1.89
N.A.
N.A.
2.00
1.83
N.A.
N.A.
2009-2018
2.50
2.26
N.A.
N.A.
2.15
2.10
N.A.
N.A.

The lower estimates for five- and 10-year annual-average headline CPI and PCE inflation are of particular interest. For CPI inflation, the projections were cut from 2.15 percent in the last survey to 1.89 percent currently (2009-2013) and from 2.50 percent to 2.26 percent (2009-2018). For PCE inflation, the estimates fell from 2.00 percent in the last survey to 1.83 percent currently (2009-2013) and 2.15 percent to 2.10 percent (2009-2018). These downward revisions could reflect differences in the composition of the panel of forecasters in the two surveys as well as downward revisions by forecasters who participated in both surveys.

Additional analysis of the individual projections suggests that at least some part of the downward revisions to long-term expectations for inflation reflects cuts made by a number of forecasters. The table below shows the results of restricting the sample of observations to those who participated in both surveys (2009 Q3 and 2009 Q4). On this restricted sample, we find reductions in median (and mean) estimates of long-term expectations for inflation. The only exception is the median projections for five- and 10-year PCE inflation.

Special Analysis
Long-Run Projections for Inflation (Annualized Percentage Points)
Sample Restricted to Those Who Provided Projections in the
Current and Previous Surveys
Variable
Number of
Forecasters
Mean Projections
Median Projections
Standard
Deviation
Previous
Current
Previous
Current
Previous
Current
2009 – 2013: CPI
23
2.16
1.90
2.00
1.80
0.59
0.54
: PCE
20
1.85
1.74
1.80
1.80
0.53
0.49
2009 – 2018: CPI
22
2.48
2.31
2.47
2.21
0.49
0.44
: PCE
19
2.18
2.08
2.10
2.10
0.51
0.37

Thus far, the special analysis does not address the question of whether one individual's projection could influence the consensus. Further analysis suggests that, among the group of forecasters who participated in both surveys, more forecasters lowered their estimates than raised them. The mean and median amounts by which forecasters raised their estimates were lower (in absolute value) than the amount by which forecasters lowered their estimates, as the following tables show.

Special Analysis
Long-Run Projections for Inflation (Annualized Percentage Points)
Forecasters Who Raised Their Projections
Variable
Number of Forecasters
Mean Change in Projection
Median Change in Projection
Range of the Change in Projection
2009 – 2013: CPI
3
0.16
0.10
0.10 to 0.28
: PCE
8
0.20
0.20
0.10 to 0.40
2009 – 2018: CPI
5
0.18
0.18
0.05 to 0.40
: PCE
4
0.31
0.25
0.15 to 0.60
Special Analysis
Long-Run Projections for Inflation (Annualized Percentage Points)
Forecasters Who Lowered Their Projections
Variable
Number of Forecasters
Mean Change in Projection
Median Change in Projection
Range of the Change in Projection
2009 – 2013: CPI
15
-0.43
-0.40
-0.90 to -0.04
: PCE
8
-0.47
-0.43
-0.90 to -0.03
2009 – 2018: CPI
13
-0.36
-0.30
-1.0 to -0.10
: PCE
8
-0.38
-0.40
-0.8 to -0.02

Among the group of forecasters who lowered their projections (see the table above), three different forecasters are responsible for the largest downward revisions across the four variables. However, an inspection of the data shows that the downward revisions were spread fairly uniformly on each of the ranges.

The figures below show the probabilities that the forecasters are assigning to the possibility that fourth-quarter over fourth-quarter core PCE inflation in 2009 and 2010 will fall into each of 10 ranges. The forecasters see a higher chance that inflation will fall into the range of 1.0 percent to 1.9 percent in 2009 than they previously thought. Inflation in 2010 is less likely to fall into the extreme ranges than the forecasters thought last quarter. Forecasters are, in other words, a bit more certain about 2010 inflation prospects than they were in the last survey.

Forecasters Assign a Lower Risk of a Downturn

The forecasters are reducing the chance of a contraction in real GDP in any of the next three quarters. They have cut their estimate of the risk of a downturn this quarter to 15.4 percent compared with 23.7 percent previously. As the table below shows, smaller downward revisions have occurred in the following two quarters.

Risk of a Negative Quarter (%)
 
Previous
New
Quarterly data:
2009:Q4
23.7
15.4
2010:Q1
17.8
15.9
Q2
15.9
14.0
Q3
13.5
13.8
Q4
N.A.
13.4

The Federal Reserve Bank of Philadelphia thanks the following forecasters for their participation in our surveys:

Robert J. Barbera, ITG Inc.; Jay Brinkmann, Mortgage Bankers Association; Joseph Carson, Alliance Capital Management; Christine Chmura, Ph.D. and Xiaobing Shuai, Ph.D., Chmura Economics & Analytics; Gary Ciminero, CFA, GLC Financial Economics; David Crowe, National Association of Home Builders; Rajeev Dhawan, Georgia State University; Shawn Dubravac, Consumer Electronics Association; Michael R. Englund, Action Economics, LLC; Gerard F. Fuda, Independent Economist; Stephen Gallagher, Societe Generale; James Glassman, JP Morgan Chase & Co.; Global Insight; Ethan Harris, Bank of America Merrill Lynch; William B. Hummer, Wayne Hummer Investments; Peter Jaquette, PIRA Energy Group; Fred Joutz, Benchmark Forecasts and Research Program on Forecasting, George Washington University; Kurt Karl, Swiss Re; N. Karp, Compass Bank; Jack Kleinhenz, Kleinhenz & Associates, Inc.; Thomas Lam; L. Douglas Lee, Economics from Washington; Allan R. Leslie, Economic Consultant; John Lonski, Moody's Investors Service; Macroeconomic Advisers, LLC; Dean Maki, Barclays Capital; Edward F. McKelvey, Goldman Sachs; Jim Meil, Eaton Corporation; Anthony Metz, Pareto Optimal Economics; Ardavan Mobasheri and Danielle Ferry, American International Group; Michael Moran, Daiwa Securities America; Joel L. Naroff, Naroff Economic Advisors; Herbert E. Neil, Financial and Economic Strategies Corp.; Mark Nielson, Ph.D., MacroEcon Global Advisors; Michael P. Niemira, International Council of Shopping Centers; Luca Noto, Prima Sgr; Martin A. Regalia, U.S. Chamber of Commerce; David Resler, Nomura Securities International, Inc.; Merrill Lynch; John Silvia, Wells Fargo; Allen Sinai, Decision Economics, Inc; Sean M. Snaith, Ph.D., University of Central Florida; Constantine G. Soras, Ph.D., Verizon Communications; Neal Soss, Credit Suisse; Stephen Stanley, RBS Greenwich Capital; Susan M. Sterne, Economic Analysis Associates, Inc.; Thomas Kevin Swift, American Chemistry Council; Lea Tyler, Oxford Economics USA, Inc.; Albert M. Wojnilower; Jay N. Woodworth, Woodworth Holdings, Ltd.; Richard Yamarone, Argus Research Group; Mark Zandi, Economy.com; Ellen Beeson Zentner, Bank of Tokyo-Mitsubishi UFJ, Ltd.

This is a partial list of participants. We also thank those who wish to remain anonymous.

Return to the main page for the Survey of Professional Forecasters.

  • * The forecasters' median estimate of headline PCE inflation in 2010 (1.3 percent) seems at odds with the geometric average of their underlying quarterly forecasts. We checked the observations for each forecaster and found no obvious sources for the discrepancy. Users may wish to replace our reported estimate with the underlying geometric average (1.6 percent).

View Complete WRiteup

A complete writeup of this survey, including all tables, is available in PDF format.

Fourth Quarter 2009 PDF

View panelists' responses to special questions on extended forecasts for real GDP, unemployment, and 3-month and 10-year Treasuries. Excel spreadsheet

Next Survey Release

The survey for 2010 Q1 will be released on February 12, 2010.

For more up-to-date information, please view the SPF release schedule.

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Contact Us

For further information about the Survey of Professional Forecasters, contact:

Tom Stark
Federal Reserve Bank of Philadelphia
Ten Independence Mall
Philadelphia, PA 19106
PHIL.SPF@phil.frb.org E-mail