Look Out Above! Forecasters predict falling inflation

The Philadelphia Fed's survey of professional forecasters is out.  We want to put them on record along with their universal faith in an expanding economy and a recession being over.  As we've said, GDP can expand with continued federal subsidy, but the economy is not expanding, and the major risks are still to the downside.

One of these days we'll put up the consensus's record for the past couple of years.  Karl Popper is reported to have said, "Explanations and forecasts are symmetrical and reversible."  Only by reversing their forecasts can these guys get to symmetrical with actual results.

Fourth Quarter 2009 Survey of Professional Forecasters

Release Date: November 16, 2009

Forecasters See the Expansion Continuing

The U.S. economy will grow over each of the next five quarters, according to 41 forecasters surveyed by the Federal Reserve Bank of Philadelphia. The forecasters see real GDP growing at an annual rate of 2.7 percent this quarter. On an annual-average over annual-average basis, forecasters see real GDP falling 2.5 percent in 2009 before rebounding in each of the following three years. Real GDP will grow 2.4 percent in 2010, 3.1 percent in 2011, and 3.3 percent in 2012. As the table below shows, these estimates are a bit higher than those the forecasters projected in last quarter's survey.

The labor market looks weaker now than it did three months ago. Unemployment is now seen at an annual average of 9.3 percent in 2009 and 10 percent in 2010, before falling to 9.2 percent in 2011 and 8.3 percent in 2012. These estimates mark upward revisions from the forecasters' previous projection. Likewise, growth in jobs looks weaker. The forecasters see nonfarm payroll employment falling at a rate of 160,000 jobs per month this quarter and 35,000 jobs per month next quarter. Both estimates mark downward revisions from the previous survey. The forecasters see jobs beginning to grow in the second quarter of 2010. Over the second half of the year, jobs will grow at a rate of 150,000 per month.

The forecasters' projections for the annual average level of nonfarm payroll employment suggest job losses at a monthly rate of 427,000 in 2009 and a further loss of 70,000 per month in 2010. (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:2009:Q4
	2.2	2.7	9.9	10.2	-81.0	-159.5
2010:Q1	2.5	2.3	9.9	10.2	51.5	-35.0
Q2	2.8	2.4	9.8	10.1	61.5	57.6
Q3	2.6	2.6	9.6	10.0	90.8	158.6
Q4	N.A.	2.9	N.A.	9.8	N.A.	142.2
Annual average data:
2009	-2.6	-2.5	9.2	9.3	-415.7	-426.7
2010	2.3	2.4	9.6	10.0	-24.6	-69.8
2011	2.9	3.1	8.9	9.2	N.A.	N.A.
2012	3.2	3.3	8.0	8.3	N.A.	N.A

Reduced Expectations for Inflation at (Almost) All Horizons

The forecasters have cut their expectations for inflation at all but the shortest horizons. This covers the survey's headline and core measures of CPI and PCE inflation. Most notably, the forecasters see lower inflation at the 10-year annual-average horizon than they predicted in last quarter's survey, as shown in the table below.

	Headline CPI		Core CPI		Headline PCE		Core PCE
	Previous	Current	Previous	Current	Previous	Current	Previous	Current
Quarterly
2009:Q4	1.6	2.1	1.1	1.4	1.4	1.7	1.0	1.2
2010:Q1	1.7	1.5	1.5	1.2	1.4	1.5	1.2	1.0
Q2	1.9	1.5	1.5	1.4	1.8	1.2	1.3	1.2
Q3	2.0	1.8	1.6	1.5	1.9	1.8	1.3	1.4
Q4	N.A.	1.8	N.A.	1.5	N.A.	1.8	N.A.	1.4
Q4/Q4 Annual Averages
2009	0.7	1.1	1.7	1.7	0.9	1.1	1.4	1.4
2010	1.8	1.7	1.5	1.4	1.7	1.3*	1.3	1.3
2011	2.2	2.1	2.0	1.8	2.0	1.8	1.7	1.5
Long-Term Annual Averages
2009-2013	2.15	1.89	N.A.	N.A.	2.00	1.83	N.A.	N.A.
2009-2018	2.50	2.26	N.A.	N.A.	2.15	2.10	N.A.	N.A.

The lower estimates for five- and 10-year annual-average headline CPI and PCE inflation are of particular interest. For CPI inflation, the projections were cut from 2.15 percent in the last survey to 1.89 percent currently (2009-2013) and from 2.50 percent to 2.26 percent (2009-2018). For PCE inflation, the estimates fell from 2.00 percent in the last survey to 1.83 percent currently (2009-2013) and 2.15 percent to 2.10 percent (2009-2018).