With many economic activities halted because of the COVID-19 pandemic, the near-term outlook for the U.S. economy looks much weaker now than it did three months ago, according to 42 forecasters surveyed by the Federal Reserve Bank of Philadelphia. The forecasters predict the economy will contract at an annual rate of 32.2 percent this quarter. However, the panel sees recovery over each of the next four quarters. On an annual-average over annual-average basis, the forecasters expect real GDP to decrease 5.6 percent this year but to recover and grow at an annual rate of between 2.2 percent to 4.1 percent over each of the following three years.

A sharp upward revision to the forecast for the unemployment rate accompanies the outlook for growth. The forecasters predict unemployment will be above 10.0 percent in each of the next three quarters. In the survey of three months ago, the unemployment rate was expected to stay below 4.0 percent in each of the same three quarters. On an annual-average basis, the panelists predict the unemployment rate will decline from 10.8 percent in 2020 to 5.1 percent in 2023.

On the employment front, the forecasters see job losses in the current quarter at a rate of 7,647,800 per month. The recovery in the labor market will begin in the third quarter of 2020, with job gains of 2,328,900 per month. The projections for the annual-average level of nonfarm payroll employment suggest job losses at a monthly rate of 933,300 in 2020 and job gains at a monthly rate of 314,400 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.)

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 estimates of the probability that growth will fall into each of 11 ranges. Beginning with the 2020:Q2 survey, changes were made to the definition of the probability bins for real GDP growth over the next four years.

For 2020, the forecasters predict a less than 3 percent chance that year-over-year growth will be positive. For 2021, the forecasters see recovery and predict a near-90 percent chance that year-over-year growth will fall in the positive range. For 2022 and 2023, the economy is expected to strengthen further, and the forecasters predict a mid-90s percent chance of positive year-over-year growth in both years.

• 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)
• Mean Probabilities for Real GDP Growth in 2023 (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’ current estimates of the probability that unemployment will fall into each of 10 ranges. Beginning with the 2020:Q2 survey, changes were made to the definition of the probability bins for the unemployment rate over the next four years.

For 2020, the forecasters predict a 65 percent chance that unemployment will be greater than or equal to 10.0 percent. For 2021, the forecasters see a 29 percent chance that unemployment will be in the same range. The forecasters see additional recovery in 2022 and 2023. They predict a 7 percent chance that unemployment will be greater than or equal to 10.0 percent in 2022 and a 2 percent chance in 2023 over the same range.

• Mean Probabilities for Unemployment Rate in 2020 (chart)
• Mean Probabilities for Unemployment Rate in 2021 (chart)
• Mean Probabilities for Unemployment Rate in 2022 (chart)
• Mean Probabilities for Unemployment Rate in 2023 (chart)

Downward Revisions to the Projections for Inflation at All Horizons

The forecasters predict lower inflation at all horizons for both the headline and core measures of CPI and PCE inflation than they predicted in the previous survey.

The forecasters expect headline CPI inflation in 2020 to average 0.5 percent, down from 2.0 percent in the last survey. Headline PCE inflation in 2020 will be 0.8 percent, down 1.1 percentage points from the previous estimate.

Over the next 10 years, 2020 to 2029, the forecasters expect headline CPI inflation to average 2.14 percent at an annual rate, down from 2.20 percent in the survey of three months ago. The corresponding estimate for 10-year annual-average PCE inflation is 1.87 percent, down from 2.00 percent in the last survey.

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 lowered projections for the long-term inflation rate, compared with those of the last 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 each of 10 possible ranges for fourth-quarter over fourth-quarter core PCE inflation in 2020 and 2021. For both years, the forecasters have increased the probability that core PCE inflation will be below 1.5 percent.

• Mean Probabilities for Core PCE Inflation in 2020 (chart)
• Mean Probabilities for Core PCE Inflation in 2021 (chart)

Sharply Higher Risk of a Negative Quarter

The forecasters have revised upward the chance of a contraction in real GDP in any of the next three quarters. For the current quarter, the forecasters predict a 98.1 percent chance of negative growth, up from 14.9 percent in the survey of three months ago.

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, W. Song, and A. Thapar, 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; Michael Gapen, Barclays Capital; Sacha Gelfer, Bentley University; James Glassman, JPMorgan Chase & Co.; Jan Hatzius, Goldman Sachs; Brian Higginbotham, U.S. Chamber of Commerce; Peter Hooper, Deutsche Bank Securities, Inc.; 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.; Thomas Lam, Sim Kee Boon Institute, Singapore Management University; John Lonski, Moody’s Capital Markets Group; 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; Mark Nielson, Ph.D., MacroEcon Global Advisors; Brendon Ogmundson, BC Real Estate 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/Montclair State University; 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; 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.