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Fourth Quarter 2010 Survey of Professional Forecasters

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

Forecasters Predict Further Slowdown in Economic Recovery

The pace of recovery in output and employment in the U.S. economy looks a little slower now than it did three months ago, according to 43 forecasters surveyed by the Federal Reserve Bank of Philadelphia. The panel expects real GDP to grow at an annual rate of 2.2 percent this quarter, down from the previous estimate of 2.8 percent. On an annual-average over annual-average basis, the forecasters predict slower real GDP growth in 2010, 2011, and 2012. However, some of that downward revision will be compensated with stronger real GDP growth in 2013. The forecasters see real GDP growing 2.7 percent in 2010, down from their prediction of 2.9 percent in the last survey. The forecasters predict real GDP will grow 2.5 percent in 2011, 2.9 percent in 2012, and 3.0 percent in 2013.

The forecasters also predict weaker recovery in the labor market. Unemployment is projected to be an annual average of 9.7 percent in 2010, before falling to 9.3 percent in 2011, 8.7 percent in 2012, and 7.9 percent in 2013. These estimates are higher than the projections in the last survey. On the employment front, the forecasters have revised downward the growth in jobs over the next four quarters. The forecasters see nonfarm payroll employment growing at a rate of 86,600 jobs per month this quarter and 104,200 jobs per month next quarter. The forecasters’ projections for the annual average level of nonfarm payroll employment suggest job losses at a monthly rate of 56,100 in 2010. Job gains in 2011 are seen averaging 105,500 per month, as the table below shows. (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:
2010:Q4
2.8
2.2
9.6
9.6
114.1
86.6
2011:Q1
2.3
2.4
9.4
9.5
159.3
104.2
Q2
3.1
2.7
9.3
9.4
190.7
144.3
Q3
3.0
3.3
9.0
9.2
189.9
139.8
Q4
N.A.
2.9
N.A.
9.0
N.A.
170.6
Annual data (projections are based on annual average levels):
2010
2.9
2.7
9.6
9.7
-45.2
-56.1
2011
2.7
2.5
9.2
9.3
143.8
105.5
2012
3.6
2.9
8.2
8.7
N.A.
N.A.
2013
2.6
3.0
7.3
7.9
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 have revised downward their estimate of the probability that growth will fall into the range of 3.0 to 4.9 percent in 2010, 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 9.5 to 9.9 percent in 2010, 2011, 2012, and 2013 compared with their previous estimate.

Forecasters Cut Projections for Inflation Estimates but Continue to See Little Risk of Deflation

The current outlook for the headline and core measures of CPI and PCE inflation in 2011 and 2012 is lower than it was in the last survey. Over the next 10 years, 2010 to 2019, the forecasters expect headline CPI inflation to average 2.2 percent at an annual rate, down from 2.3 percent in the last survey. The 10-year outlook for PCE inflation of 2.0 percent is lower than the 2.11 percent in the last survey.

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
Quarterly
2010: Q4
1.6
1.9
1.2
1.0
1.5
1.7
1.1
1.0
2011: Q1
1.8
1.6
1.2
1.1
1.7
1.5
1.4
1.1
2011: Q2
1.6
1.3
1.4
1.3
1.5
1.2
1.4
1.1
2011: Q3
1.9
1.8
1.6
1.3
1.7
1.4
1.5
1.2
2011: Q4
N.A.
1.8
N.A.
1.5
N.A.
1.6
N.A.
1.3
Q4/Q4 Annual Averages
2010
0.9
1.0
0.9
0.8
1.2
1.2
1.1
1.0
2011
1.8
1.6
1.5
1.3
1.7
1.4
1.5
1.2
2012
2.1
1.9
1.9
1.7
1.8
1.8
1.7
1.6
Long-Term Annual Averages
2010-2014
2.00
2.00
N.A.
N.A.
1.82
1.80
N.A.
N.A.
2010-2019
2.30
2.20
N.A.
N.A.
2.11
2.00
N.A.
N.A.

The downward revision to long-term expectations for inflation (noted above) reflects, in part, a changing panel of forecasters from the previous survey to the current survey. As the table below shows, when we restrict the panel to include only those who participated in both surveys, expectations for 10-year annual-average CPI inflation are unchanged. In both surveys, the median forecast is 2.30 percent. On the restricted panel, expectations for 10-year annual-average PCE inflation decline (from 2.11 percent to 2.05 percent). However, the decline is less than the one estimated on the full panels of each survey (2.11 percent to 2.00 percent).

The table below contrasts the median long-term inflation projections from the full panel (see “Full Panel Medians”) of the 2010 Q3 and 2010 Q4 surveys with the projections from the restricted panels (see “Restricted Panel Medians”). We also show the common number of forecasters in the restricted panel (N).

A breakdown of the restricted panel into those who raised their estimates and those who lowered them shows that the forecasters are nearly equally divided on whether to raise or lower their 10-year projections. At the 10-year horizon, 10 forecasters raised their estimates for CPI and PCE inflation. The median forecast revision is 0.20 percentage point for both CPI inflation and PCE inflation. Only slightly fewer forecasters lowered their estimates than raised them. This group lowered their estimates by a median amount of 0.10 percentage point for CPI inflation and 0.11 percentage point for PCE inflation.

Special Analysis of Long-Term Expectations for Inflation
Inflation
Measure 
Full Panel Medians (%)
Restricted Panel Medians (%)
Statistics for Those Who Raised Their Estimates
Statistics for Those Who Lowered Their Estimates
10Q3
10Q4
10Q3
10Q4
N
N
Mean Forecast Revision (%)
Median Forecast Revision (%)
N
Mean Forecast Revision (%)
Median Forecast Revision (%)
5-Year CPI
2.00
2.00
2.00
2.00
28
12
0.25
0.15
7
-0.19
-0.16
5-Year PCE
1.82
1.80
1.83
1.90
27
8
0.23
0.20
10
-0.15
-0.10
10-Year CPI
2.30
2.20
2.30
2.30
27
10
0.27
0.20
9
-0.20
-0.10
10-Year PCE
2.11
2.00
2.11
2.05
26
10
0.33
0.20
8
-0.20
-0.11

The figures below show the probabilities that the forecasters are assigning to the possibility that fourth-quarter over fourth-quarter core PCE inflation in 2010 and 2011 will fall into each of 10 ranges. For 2010 and 2011, the forecasters assign a higher chance than previously that core PCE inflation will fall in the range of 0.5 to 1.4 percent. The probability that inflation in 2011 will be less than zero is small and nearly unchanged from the last survey.

Lower Risk of a Negative Quarter

Despite their prediction for a slower economic recovery, the forecasters see a lower chance of a downturn over the next few quarters. The forecasters have revised downward the chance of a contraction in real GDP in any of the next four quarters. For the current quarter, they predict an 11 percent chance of negative growth, down from 16.8 percent in the survey of three months ago. As the table below shows, the panelists have also made downward revisions to their forecasts for the following three quarters.

Risk of a Negative Quarter (%)
 
Previous
New
Quarterly data:
2010: Q4
16.8
11.0
2011: Q1
16.5
12.9
2011: Q2
15.0
13.6
2011: Q3
14.9
13.2
2011: Q4
N.A.
13.8

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

Robert J. Barbera, Mount Lucas Management; 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; Robert C. Fry, Jr., DuPont; Stephen Gallagher, Societe Generale; Timothy Gill, NEMA; James Glassman, JPMorgan Chase & Co.; Ethan Harris, Bank of America-Merrill Lynch; Peter Hooper, Deutsche Bank Securities, Inc.; William B. Hummer, Wayne Hummer Investments; IHS Global Insight; Peter Jaquette, PIRA Energy Group; Fred Joutz, Benchmark Forecasts and Research Program on Forecasting, George Washington University; Kurt Karl, Swiss Re; N. Karp, BBVA Compass; Walter Kemmsies and Daniel Solomon, Moffatt & Nichol; Jack Kleinhenz, Kleinhenz & Associates, Inc.; Thomas Lam, OSK Group/DMG & Partners; L. Douglas Lee, Economics from Washington; Allan R. Leslie, Economic Consultant; John Lonski, Moody’s Capital Markets Group; 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, AIG Global Economic Research; Michael Moran, Daiwa Capital Markets America; Joel L. Naroff, Naroff Economic Advisors; 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.; Philip Rothman, East Carolina University; John Silvia, Wells Fargo; Allen Sinai, Decision Economics, Inc; Tara M. Sinclair, Research Program on Forecasting, George Washington University; Sean M. Snaith, Ph.D., University of Central Florida; Constantine G. Soras, Ph.D., CGS Economic Consulting; Neal Soss, Credit Suisse; Stephen Stanley, Pierpont Securities; Susan M. Sterne, Economic Analysis Associates, Inc.; Thomas Kevin Swift, American Chemistry Council; Lea Tyler, Oxford Economics USA, Inc.; Jay N. Woodworth, Woodworth Holdings, Ltd.; Mark Zandi, Moody’s Analytics; 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.

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Fourth Quarter 2010 PDF

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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