JULY NABE OUTLOOK SUPPLEMENT
The recent final revision to real GDP growth for the first quarter of 2014 to -2.9%, which represented the fastest rate of decline since the Great Recession ended nearly five years ago, spurred NABE to design a special five-question survey for NABE's Outlook Panel of professional economic forecasters to complete between July 3-8, after the release of the June Employment Situation report. In all, 50 panelists provided their updated estimates for real GDP, real personal consumption expenditures (PCE), and real exports. Panelists also were asked to estimate the probability that the US will enter a recession in 2014 or 2015, and for their forecast for when the Federal Reserve will first raise the federal funds rate. Timothy Gill,
National Electrical Manufacturers Association (chair); Jack Kleinhenz, National Retail Federation and NABE president; and Ken Simonson, Associated General Contractors of America; provided the analysis 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.
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. The next quarterly NABE Outlook Survey will be conducted between August 25-September 8, and the results will be released September 29 during the 2014 NABE Annual Meeting in Chicago.
Summary: “Respondents to a special survey conducted by the National Association for Business Economics (NABE) expect the economy to return to growth in the second quarter of 2014 following a sizable decline in the first three months of the year,” according to Jack Kleinhenz, NABE president and chief economist at the National Retail Federation. “While expectations for real GDP, consumer spending, and export growth have been marked down since June in the aftermath of large downward revisions to first-quarter data, NABE Outlook panelists forecast economic activity to increase on an annual basis in 2014, and believe the probability that the U.S. will enter a recession this year or next is low.”
“The panel’s median forecast is that real GDP growth will rebound to a solid 3.0% annualized pace in the second quarter after falling 2.9% in the first quarter,” said Timothy Gill, Outlook Survey Chair and deputy chief economist at the National Electrical Manufacturers Association. “That represents a decline from the median expectation of 3.5% reported in NABE’s June Outlook Survey. Likewise, the full-year growth forecast for 2014 was trimmed to 1.6% from June’s 2.5% rate. Forecasts for real personal consumption expenditures and exports were also lowered.
“Notwithstanding the difficult start to the year, opinion is widespread that the economy is on solid footing. More than 90% of panelists believe the probability that the economy will fall into recession in 2014 or 2015 is less than 25%.
Moreover, panelists expect the Federal Reserve will act sooner than previously expected to raise interest rates, with more than half the panelists expecting a hike in the first half of 2015. In the June survey, a majority expected a rate increase during the second half of 2015.”
Highlights
• The panelists’ median forecast for annualized second-quarter 2014 real GDP growth is 3.0%, lower than the 3.5% median forecast when the full Outlook survey was last released in June. Real GDP for the full-year 2014 is forecast to advance 1.6% when measured both on a Q4/Q4 and annual average basis. In June, the median forecast was for both measures to increase 2.5%.
• The median forecast for annualized second quarter real personal consumption expenditures (PCE) is for a 2.3% increase, down from the from 2.9% growth pace expected in June. PCE is seen increasing 2.1% on an average annual basis in 2014, lower than the 2.9% gain previously forecasted.
• Real exports are expected to rise 2.5% on an average annual basis in 2014, lower than June’s 3.0% forecast and less than half of the 5.5% growth pace anticipated in the March survey.
• Despite lowering their forecasts for 2014, panel see a low probability of a U.S. recession in 2014 or 2015. Almost 60% of the panelists put the odds at less than 10%, while nearly another third (32.7%) estimate the recession probability at between 10% and 25%. Only about 8% believe the probability is higher than 25%, with just 2% putting the odds at greater than fifty-fifty.
• Moreover, the consensus of the panel is that the Federal Reserve will begin tightening monetary policy earlier than was expected in June. More than half the panelists (51%) forecast the Fed will first increase the federal funds rate target in the first half of 2015, with a plurality of almost 37% predicting an increase in the second quarter of 2015. Another 36.6% expect an initial rate hike in the second half of 2015. These results are nearly reversed from the June survey, when 33% expected a rate increase in the first half of 2015 and 53% expected a hike in the second half. Small shares of panelists expect monetary tightening to begin in the second half of 2014 (8.1%) or after 2015 (4.1%).
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