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Forecasters See Weaker Outlook for Growth and Employment
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The outlook for growth in the U.S. economy over the next three years looks slightly weaker than that of three months ago, according to 40 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 1.5 percent in 2016, down from the previous estimate of 1.7 percent. The forecasters predict real GDP will grow 2.3 percent in 2017, 2.2 percent in 2018, and 2.2 percent in 2019. The forecasts for 2016, 2017, and 2018 are slightly weaker than the previous estimates.
The projections for unemployment remain nearly unchanged from those of the previous survey. The forecasters predict the unemployment rate will be an annual average of 4.8 percent in 2016, before falling to 4.6 percent in 2017, 4.6 percent in 2018, and 4.7 percent in 2019.
On the employment front, the forecasters have revised downward their estimates for job gains in 2016 and 2017. The forecasters’ projections for the annual-average level of nonfarm payroll employment suggest job gains at a monthly rate of 204,600 in 2016, down from the previous estimate of 212,400, and 161,100 in 2017, down from the previous estimate of 178,400. (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.)
For 2016, the panelists are more certain now than they were in the previous survey that growth will fall below 2.0 percent. For 2017, 2018, and 2019, the probabilities are about the same now as they were in the survey of three months ago.
Short-Term CPI Inflation Revises Upward, While the Outlook for PCE Inflation Holds Steady
The forecasters see slightly higher headline CPI inflation in 2016 and 2017 compared with their predictions of three months ago. Measured on a fourth-quarter over fourth-quarter basis, headline CPI inflation is expected to average 1.6 percent in 2016, 2.3 percent in 2017, and 2.3 percent in 2018. The projections for headline PCE inflation over the next three years remained unchanged from the survey of three months ago. Measured on a fourth-quarter over fourth-quarter basis, headline PCE inflation is expected to average 1.4 percent in 2016, 1.9 percent in 2017, and 2.0 percent in 2018.
Over the next 10 years, 2016 to 2025, the forecasters expect headline CPI inflation to average 2.15 percent at an annual rate, down slightly from their previous estimate of 2.20 percent. The corresponding estimate for 10-year annual-average PCE inflation is 2.00 percent, which is unchanged from the previous estimate.
Natural Rate of Unemployment Estimated at 4.8 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 4.80 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. Fifty-six percent of the 32 forecasters who answered the question report that they use the natural rate in their forecasts. The lowest estimate is 4.50 percent, and the highest estimate is 5.50 percent.
Posted: August 12, 2016 Friday 10:00 AM