NABE Outlook Survey - October 2018

Summary

NABE Panel Foresees Pickup in Economic Growth through 2018, With Boost from Fiscal Policy; Inflation Expected to Remain Mild

The October 2018 NABE Outlook presents the consensus macroeconomic forecast of a panel of 51 professional forecasters. The survey, covering the outlook for 2018 and 2019, was conducted August 28-September 17, 2018. The NABE Outlook Survey originated in 1965, and is one of three surveys conducted by the
National Association for Business Economics (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 2,600 members and 40 chapters nationwide. David Altig, Federal Reserve Bank of Atlanta, Chair; Chris Christopher, CBE, IHS Markit; Jack Kleinhenz, CBE, National Retail Federation; Chad Moutray, CBE, National Association of Manufacturers; Yelena Shulyatyeva, Bloomberg LP; Ryan Sweet, Moody’s Analytics; Kevin Swift, CBE, American Chemistry Council; and Richard Wobbekind, CBE, Leeds School of Business, University of Colorado/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: “Despite concerns over trade policy, NABE Outlook panelists are slightly more optimistic about the U.S. economy in 2018 than they were three months ago, especially regarding prospects for the industrial sector of the economy,” said NABE Vice President Kevin Swift, CBE, chief economist, American Chemistry Council. “Other indicators of real economic activity show light vehicle sales remaining elevated and housing continuing to improve.”

“Trade issues are clearly influencing panelists' views," added Survey Chair David Altig, executive vice president and director of research, Federal Reserve Bank of Atlanta. “Half of survey respondents have moderately increased their inflation forecasts as a result of trade policy changes. Over half of the survey respondents indicate that they had reduced their GDP growth forecasts for 2018 and nearly 80% did so for 2019. Nonetheless, the percentage of panelists expecting a recession in 2019 fell relative to that in the June survey. One-third of respondents expects that we will not see a recession until 2021 or later.”

HIGHLIGHTS

The median forecast for growth in inflation-adjusted gross domestic product (real GDP) from the fourth quarter (Q4) of 2017 to the fourth quarter of 2018 is 3.1%, a 0.3-percentage-point increase from the June 2018 NABE Outlook survey. The median forecast for real GDP growth from Q4 2018 to Q4 2019 calls for a moderation to 2.5%—unchanged from the previous survey. The panel anticipates economic growth in 2018 will be stronger than the actual 2.2% annual real GDP growth rate in 2017. On an annual basis, real GDP growth in 2018 is expected to be 2.9%, a slight rise from the 2.8% in the June survey, while the forecast for average annual real GDP growth in 2019 of 2.7% remains unchanged.

Panelists were asked how the recent trade tensions between the U.S. and its trading partners have affected their real GDP forecasts for 2018 and 2019. Nearly half (47%) of the panelists report they lowered their forecasts for 2018 by 0.25 percentage points or less, while 4% of panelists reduced their forecasts between 0.26 and 0.5 percentage points. Only 4% of respondents lowered their forecasts in excess of 0.25 percentage points. On the other hand, 14% of panelists boosted their GDP growth forecasts for this year by 0.01 to 0.25 percentage points. The remaining 35% of panelists made no change to their 2018 GDP growth forecasts. For 2019
GDP growth, more than three-fourths (78%) of panelists lowered their forecasts between 0.01 and 0.5 percentage points, while 8% of panelists raised their forecasts.

Fifty-one percent of panelists indicate that the risks to GDP growth are weighted to the downside, while 20% state that upside risks outweigh downside risks. Twenty-nine percent of respondents report that the risks to GDP growth are balanced.

Panelists were asked about the greatest downside risk to the U.S. economy through 2019, considering the probability of the “risk” event and the potential impact. The largest share of the panel, 41%, ranks “trade policy” as the greatest downside risk. Both “higher interest rates” and a “substantial stock market decline or market volatility” are ranked second, each cited by 18% of respondents. Eight percent of panelists view “rising inflation” as the greatest downside risk, while 6% note “labor shortages” as the primary downside risk. No respondents cite a “strong dollar” or “federal deficit” as the greatest downside risks to the economy through the end of next year.

One-third of respondents (33%) indicates the greatest upside risk is “corporate tax reform.” The second largest share of the panel, 27%, ranks “stronger wage growth” as the greatest upside risk. At a distant third, “stronger global growth” is cited by 10% of panelists.

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