WASHINGTON (MaceNews) – The National Association for Business Economics Monday presented the results of its latest quarterly survey of forecasters, with the panel of 45 showing a wider degree of uncertainty over key etrics than usual, although somewhat improved over the previous survey. Some excerpts follow:
GDP
• Expectations for inflation-adjusted gross domestic product (real GDP) growth in 2023 are higher relative to those reported in the February 2023 Outlook Survey, while expectations for GDP growth in 2024 are lower. Projections for real GDP growth are widely dispersed. The lowest five forecasts anticipate a recession, while the highest five do not, and
instead forecast growth.
—
• The median forecast calls for real GDP to rise by 0.4% from the fourth quarter (Q4) of 2022 to Q4 2023. This forecast is higher than the 0.3% growth rate anticipated in the February 2023 survey. The anticipated year-over-year growth rate is 1.2%, up from 0.8% forecasted in the February survey. The median expectation for all components of real GDP growth in 2023—including consumption, investment, inventories and net exports—are higher than in the February survey.
—
• Real GDP is projected to grow at a slower pace in 2024 than was forecasted in the February survey. Forecasts for consumption, fixed investment, and inventories have been revised downward, resulting in 1.7% growth Q4/Q4 (or 1.2% year-over-year) in 2024 compared to 1.9% Q4/Q4 (or 1.4% year-over-year) forecasted in February 2023.
—
• The panel anticipates real residential fixed investment to decline 12.7% in 2023, a shallower decline in growth than the 14.2% median decline forecasted in February. Survey results reflect a slight uptick in 2023 housing starts projections compared to the February survey, along with a 3.0% downturn in FHFA home prices, Q4/Q4. However, the expected revival in housing activity in 2024 is forecasted to be more muted than projected in February, along with smaller anticipated increases in home price valuations.
—
INFLATION
• Nearly all of the panelists (98%) anticipate the year-over-year core PCE inflation rate will remain above the Federal Open Market Committee’s (FOMC) price stability goal of 2%. Two percent of respondents anticipate the core PCE inflation rate will slow to 2% by the second half of 2023. A majority (59%) of the panel does not anticipate core PCE inflation converging to the FOMC’s price stability goal until 2025 or later.
—
• The panel’s median forecast calls for inflation to return to a 2% range in 2024, as in the February survey. However, median inflation forecasts are higher for Q2 2023 through Q3 2024 than in the previous survey.
—
• The overall consumer price index (CPI) is projected to increase by 3.3% Q4/Q4 in 2023, up from the 3.0% forecasted in the February 2023 survey. Headline CPI inflation is still anticipated to edge lower in 2024, with the median forecast calling for a 2.3% increase in Q4/Q4, unchanged from the February 2023 survey.
—
• The panel’s projections for both the total and core personal consumption expenditures (PCE) price indexes for 2023 have been revised upward. The median forecast for Q4/Q4 2023 headline PCE inflation is 3.2%, up from 2.7% in the February survey. The core PCE price index (excluding food and energy prices), is expected to rise by 3.6% in 2023
(on a Q4/Q4 basis), compared to 3.0% in the previous survey.
—
• There is wide disparity among the panel’s views on inflation projections. The median of the five highest forecasts for 2023 core PCE inflation is 4.3%, compared to a median projection of 2.4% for the five lowest forecasts. Notably, the spread in these projections remains wide for 2024, ranging from 1.6% to 3.7%
—
LABOR
• Respondents expect average monthly nonfarm payroll increases to be higher in 2023, but lower in 2024, compared to the February 2023 survey results. However, the dispersion of panelists’ estimates is wide.
• Monthly nonfarm payrolls in 2023 are forecasted to increase by an average of 142,000, up from the 102,000 jobs forecasted in the February 2023 survey. After increasing by a revised monthly average of 295,000 in Q1 2023, the panel’s median forecast calls for payrolls to increase by a monthly average of 171,000 in Q2, and then decrease to a monthly
average of 27,000 in the second half of 2023. Employment is then expected to pick up through each quarter of 2024, but average 88,000 for the year compared to 99,000 forecasted in the February survey.
—
• The panel forecasts a 3.7% average annual unemployment rate for 2023, down from 3.9% in the previous survey. The unemployment rate is expected to remain at 3.5% in the first half of 2023, but rise in the second half of the year, reaching 4% in Q4. The unemployment rate is projected to average 4.3% in 2024, but the peak of 4.4% over the forecast period is expected to be reached in Q2.
—
• Panelists’ projections for unemployment also vary widely. The median of the five lowest estimates forecasts an unemployment rate of 3.4% by Q4 2023, while the median of the five highest forecasts calls for unemployment to rise to 5.4% by Q4 2023.
—
• The majority of respondents doubt that the unemployment rate will reach 5% in the next 12 months. Eighty-three percent of panelists indicate that the unemployment rate will peak at 4.9% or lower over the next 12 months. Another 17% expect it will peak between 5.0% and 5.9%.
• Nonfarm business compensation per hour is projected to increase 4.3% in 2023, up from 4.0% in the February survey and lower than the actual 4.8% increase 2022. Panelists forecast hourly nonfarm business compensation growth of 3.6% in 2024.
—
MONETARY POLICY AND INTEREST RATES
• Panelists expect that the federal funds rate will be higher at year-end 2023 than anticipated in the February survey. The degree to which the Fed will loosen monetary policy in 2024 declined in May compared to February.
—
• Panelists expect that the Federal Open Market Committee (FOMC) will begin to reduce its target for the federal funds interest rate in Q1 2024, later than the Q4 2023 anticipated in the February survey. The median projection for the maximum fed funds target is unchanged from the previous survey; the fed funds rate target is expected to hit 5.125% at the mid-range in Q2 2023. Panelists project the fed funds rate will remain at 5.125% through the end of this year. This result is slightly higher than the 4.875% expected by year-end in the February survey.
—
• Panelists continue to disagree about the path of rate cuts next year; responses range from a 2.625% to a 5.125% rate range by year-end 2024. The median projection for the fed funds rate at the middle of the target range is 3.58%. This is slightly higher than the 3.50% expected in the February survey.
—
• Half of respondents expects the FOMC to start cutting rates in the first quarter of 2024. This result is an increase from the third of respondents who held this view in the February survey. Fewer respondents than in the February survey believe that the Fed will cut rates before the end of 2023.
—
• Two-thirds of panelists agree that the Fed will be prompted to start cutting rates when it is confident that inflation will slow to its 2% target in 2024. This result is higher than the approximately half of respondents who held this view in the February survey.
—
• About a third of panelists believe that a spike in the unemployment rate, or an extremely negative payrolls employment reading, will be the catalyst for rate cuts. In the February survey, almost half of respondents held this view. In addition, 28% believe that a severe U.S. recession will prompt the Fed to cut rates.
—
• Expectations for the 10-year Treasury bond yield are slightly lower compared to those in the February survey. Respondents expect the 10-year yield to hit 3.50% by the end of 2023, down from the 3.55% projected in February. The 10-year yield is expected to be 3.40% by year-end 2024, essentially unchanged from the 3.42% projected in February’s survey.
—
Content may appear first for exclusively on the Mace News premium service. For real-time delivery in entirety, contact tony@macenews.com. Twitter headlines @macenewsmacro.