December 2014 NABE Outlook

The December 2014 NABE Outlook presents the consensus of macroeconomic forecasts from a panel of 48 professional forecasters (see last page for listing). The survey, covering the outlook for 2014 and 2015, was conducted November 4-17, 2014. The NABE Outlook Survey originated in 1965 and is one of three surveys conducted by NABE; the others are the NABE Business Conditions Survey and the NABE Economic Policy Survey. Founded in 1959, the National Association for Business Economics is the professional association for those who use economics in their work. NABE has over 2,500 members and 41 chapters nationwide. Timothy Gill, National Electrical Manufacturers Association (chair); Robert Kleinhenz, Los Angeles County Economic Development Corporation; Tim Mullaly, FedEx Corporation; Arun Raha, Eaton Corporation; Ken Simonson, Associated General Contractors of America; and Richard Wobbekind, Leeds School of Business, University of Colorado at Boulder, conducted the analysis of survey responses for this report. The views expressed in this report are those of the panelists and do not necessarily represent the views of their affiliated companies or institutions. This report may be reproduced in whole or in part with appropriate citation to NABE.

SUMMARY: “Economists participating in NABE’s December 2014 Outlook Survey expect economic growth to accelerate in 2015,” according to NABE President John Silvia, chief economist of Wells Fargo. “The NABE panelists’ median forecast is for real GDP growth to measure 3.1% on an annual average basis next year, a marked improvement from the 2.2% growth rate currently expected for 2014. On a Q4/Q4 basis, the panel’s median forecast is for real GDP to climb 2.2% in 2014 and 2.9% in 2015. The Outlook Survey panelists anticipate the solid pace of output growth will be accompanied by continued labor market firming, with nonfarm employment expanding by nearly 220,000 jobs per month next year and the unemployment rate falling to 5.4% by the fourth quarter of 2015. These views are slightly more optimistic than those expressed in NABE’s previous Outlook Survey released in September.”

“Meanwhile, panelists have generally trimmed their forecasts for inflation over the last three months,” says NABE Outlook Survey Chair Timothy Gill, deputy chief economist of the National Electrical Manufacturers Association, “in part due to much lower oil price expectations. At the same time, views on the timing and pace of Federal Reserve policy tightening have shifted. Consensus continues to build that a hike in the federal funds rate will take place in the middle of next year, but a plurality of panelists—46%—now believes the increase will occur in the third quarter of 2015 rather than in the second quarter as was expected in September. Likewise, the path of the federal funds rate is expected to be shallower than was predicted in September, reaching only 0.75% by the end of 2015, compared to 0.845% forecast in the previous survey. This forecast is substantially lower than the median FOMC member's latest assessment of the appropriate rate. Similarly, the 10-year Treasury note yield is now forecasted to be 3.2% at the end of 2015, lower than the 3.5% forecasted in September.” 

Highlights:

• The median forecasts for real GDP growth (on an average annual basis) for both 2014 and 2015 are slightly higher in December than they were in September. Real GDP is now expected to grow 2.2% in 2014 (compared to the 2.1% forecast in September’s survey), with growth climbing to a 3.1% pace in 2015 (compared to 3.0% in the previous survey). Real GDP advanced 2.2% in 2013 on an average annual basis. The median forecast for real GDP growth from the fourth quarter of 2013 to the fourth quarter of 2014 has also been revised upward to 2.2% from 2.0% in September. The median forecast for 2015 growth (Q4/Q4 basis) is unchanged at 2.9%. Quarterly economic growth is forecasted to be slightly weaker than in the September Outlook for the fourth quarter of 2014 and the first quarter of 2015, but slightly stronger for the last three quarters of 2015.
• The median of the five most pessimistic responses for 2014 real GDP growth (Q4/Q4 basis) is 2.0%, while the median of the five most optimistic responses is 2.5%. The range of forecasts for 2015 is considerably broader, with the median of the five lowest at 2.2% and the median of the five highest at 3.8%. Consistent with this range of expected outcomes, the median probability that the U.S. economy will enter a recession in the next 12 months is 10%, while the median probability that real GDP growth will exceed 3% over the same time period is 50%. These probability estimates are identical to those reported in September.
• The outlook for the labor market has also brightened. The median forecast for the annual average unemployment rate is 6.2% in 2014 and 5.6% in 2015. This is an improvement over the September survey projections, which foresaw an average of 6.3% unemployment this year and 5.8% next year. The outlook for nonfarm payroll growth increased modestly in the December survey to 226,000 net new jobs per month in 2014 and 217,000 per month in 2015. 

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