March 2015 NABE Outlook - Summary

The March 2015 NABE Outlook presents the consensus of macroeconomic forecasts from a panel of 50 professional forecasters (see last page for listing). The survey, covering the outlook for 2015 and 2016, was conducted February 25- March 12, 2015. 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 2,600 members and 42 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: “NABE’s March 2015 Outlook Survey panel expects a markedly stronger pace of economic growth in 2015 and 2016 than was recorded last year,” says NABE President John Silvia, chief economist of Wells Fargo. “The panelists’ median forecast is for real GDP to increase 3.1% on an average annual basis this year followed by a 2.9% rise in 2016. This compares to a gain of only 2.4% in 2014. Healthier consumer spending, housing investment, and government spending growth are expected to make outsized contributions to the projected acceleration in overall economic activity. Accordingly, recent labor market strength is expected to continue. The panelists’ median forecast is for net new job creation to average approximately 250,000 per month in 2015 and 216,000 per month next year. The unemployment rate is expected to continue its downward trend over the next several quarters, reaching 5% by the second half of 2016.”

“Panelists in March have revised their inflation projections for 2015 further downward amid a surging U.S. dollar and plunging oil prices,” according to NABE Outlook Survey Chair Timothy Gill, deputy chief economist of the National Electrical Manufacturers Association. “The panel’s median forecast for the consumer price index is for a gain of less than 1% on an annual average basis while its median forecast for the core personal consumption expenditures deflator is for an increase of only 1.4% on a Q4/Q4 basis. The panel’s consensus calls for consumer price inflation to accelerate in 2016 as oil prices rebound and greenback appreciation slows.”

“Against this backdrop, 88% of panelists believe the Federal Reserve will commence tightening of monetary policy in the second or third quarter of 2015,” adds Silvia. “Fifty-five percent expect a third quarter ‘liftoff’—up from the 46% who held this view in the December Outlook survey. The federal funds rate is forecasted to reach 0.75% by the end of the year—identical to expectations in December—and 2% by the end of 2016. Forecasts for both years are similar to the median assessment of members of the Federal Open Market Committee (FOMC) communicated in March.”

HIGHLIGHTS

• The panel’s median forecast for real GDP growth for 2015 is 3.1% on an average annual basis, a view unchanged from that in December’s survey. A slight dip to 2.9% is projected for 2016. Panelists forecast real GDP to grow 3% from the fourth quarter of 2014 to the fourth quarter of 2015—slightly higher than the forecast in December’s survey—and 2.9% on a Q4/Q4 basis in 2016. On a quarterly basis, the panel’s median forecast for real GDP growth for the first quarter of 2015 is an annualized 2.5%—down from the 2.7% forecasted in the December survey. Annualized real GDP growth is expected to track at or slightly above 3% for the remainder of 2015 before slowing slightly to a 2.8%-to-2.9% range in 2016.
• The outlook for the labor market is notably stronger. The median forecast for nonfarm payroll growth is 251,000 for 2015—a substantial upgrade from December’s forecast of 217,000—and 216,000 for 2016. The outlook for unemployment has also brightened: in December the 2015 unemployment rate was expected to average 5.6%; the current median forecast is 5.4%. The median forecast for 2016 is for unemployment to decline further to an average rate of just 5.1%.
• The panel’s view continue to coalesce around a mid-2015 start for Federal Reserve interest rate hikes. Eighty-eight percent of panelists expect a Fed “liftoff” in the second or third quarter of 2015—up from the 76% who held this view in December and the 69% in September. A majority of panelists—55%—now expect the next rate increase in the third quarter of 2015 while 33% expect it in the second quarter of this year. Smaller shares of the panel look for a rate hike in the fourth quarter of 2015 (2%), in 2016 (8%) and in 2017 or later (2%). (Note: The survey was conducted prior to the March meeting of the FOMC.