Lower Near-Term Output Growth

The U.S. economy looks weaker now in the next few quarters than it did four months ago, according to 38 forecasters surveyed by the Federal Reserve Bank of Philadelphia. The forecasters predict real GDP will grow at an annual rate of 1.5 percent this quarter and 2.4 percent next quarter, down from the previous estimates of 2.4 percent and 2.7 percent, respectively. On an annual-average over annual-average basis, the forecasters predict real GDP to grow 2.4 percent in 2019, 2.0 percent in 2020, and 1.8 percent in 2021. The projection for 2019 is 0.3 percentage point lower than the estimate of four months ago, while the projections for 2020 and 2021 are roughly unchanged.

A slightly weaker outlook for the unemployment rate for the next few quarters accompanies the weaker outlook for near-term output growth. The forecasters predict the unemployment rate will average 3.7 percent in 2019 and 2020, 4.0 percent in 2021, and 4.2 percent in 2022.

The panelists, however, see somewhat stronger growth in employment this year than they predicted previously. The projections for the annual-average level of nonfarm payroll employment suggest job gains at a monthly rate of 191,800 in 2019, up from the previous estimate of 181,900. (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 (except the one for 2022) presents the forecasters’ previous and current estimates of the probability that growth will fall into each of 11 ranges. The charts show the forecasters have revised downward their estimates of the probability that real GDP will grow above 3.0 percent in any of the next three years, especially in 2019.

• Mean Probabilities for Real GDP Growth in 2019(chart)
• Mean Probabilities for Real GDP Growth in 2020(chart)
• Mean Probabilities for Real GDP Growth in 2021(chart)
• Mean Probabilities for Real GDP Growth in 2022(chart)

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’ estimates of the probability that unemployment will fall into each of 10 ranges. The charts show that the estimates of uncertainty about the unemployment rate over the next three years have changed little from those in the previous survey.

• Mean Probabilities for Unemployment Rate in 2019(chart)
• Mean Probabilities for Unemployment Rate in 2020(chart)
• Mean Probabilities for Unemployment Rate in 2021(chart)
• Mean Probabilities for Unemployment Rate in 2022(chart)

Downward Revisions to 2019 Headline Inflation

The forecasters expect current-quarter headline CPI inflation to average 1.1 percent, down from 2.4 percent in the last survey, and 2.0 percent in 2019, down from 2.3 percent previously. Headline PCE inflation for the current quarter will be 1.4 percent, down 0.8 percentage point from the previous estimate. For 2019, the panelists see headline PCE inflation at 1.9 percent, marking a downward revision from 2.1 percent.

The projections for core CPI and PCE inflation at all horizons are little changed from those of the previous survey. Measured on a fourth-quarter over fourth-quarter basis, core CPI inflation is expected to average 2.3 percent in each of the next three years. The projections for core PCE inflation are 2.0 percent for 2019, 2.1 percent for 2020, and 2.0 percent for 2021.

Over the next 10 years, 2019 to 2028, the forecasters expect headline CPI inflation to average 2.20 percent at an annual rate. The corresponding estimate for 10-year annual-average PCE inflation is 2.00 percent.

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 the nearly unchanged projections for the long-term CPI and PCE inflation, compared with those of the previous survey.

• Projections for the 10-Year Annual-Average Rate of CPI Inflation (chart)
• Projections for the 10-Year Annual-Average Rate of PCE Inflation (chart)

The figures below show the probabilities that the forecasters are assigning to the possibility that fourth-quarter over fourth-quarter core PCE inflation in 2019 and 2020 will fall into each of 10 ranges. For 2019, the forecasters have increased the probability that core PCE inflation will be below 2.0 percent, compared with their estimates in the survey of three months ago.

• Mean Probabilities for Core PCE Inflation in 2019(chart)
• Mean Probabilities for Core PCE Inflation in 2020(chart)

Lower Risk of a Negative Quarter Beyond the Current Quarter

The forecasters have revised downward the chance of a contraction in real GDP in any of the three quarters following the first quarter of 2019. For the current quarter, the forecasters predict a 16.7 percent chance of negative growth, up from 10.6 percent in the previous survey.

Forecasters State Their Views on House Price Growth over the Next Two Years

In a special question in this survey, panelists were asked to provide their forecasts for fourth-quarter over fourth-quarter growth in house prices, as measured by a number of alternative indices. The panelists were allowed to choose their measure from a list of indices or to write in their own index. For each index of their choosing, the panelists provided forecasts for growth in 2019 and 2020.

Twenty panelists answered the special question. Some panelists provided projections for more than one index. The table below provides a summary of the forecasters’ responses. The number of responses (N) is low for each index. The median estimates for the six house-price indices listed in the table below range from 3.9 percent to 4.7 percent in 2019 and from 2.6 percent to 4.0 percent in 2020.