September 2014 NABE Outlook

The September 2014 NABE Outlook presents the consensus of macroeconomic forecasts from a panel of 46 professional forecasters (see last page for listing). The survey, covering the outlook for 2014 and 2015, was conducted August 25- September 9, 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); Craig Alexander, TD Bank; Robert Kleinhenz, Los Angeles County Economic Development 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: “Respondents to NABE’s September 2014 Outlook Survey expect the pace of economic growth to steady following an unusually high degree of volatility in the first half of the year,” according to NABE President-Elect John Silvia, chief economist at Wells Fargo. “The median forecast calls for real GDP to advance at a seasonally adjusted annualized rate of about 3% in the third and fourth quarters of 2014 and throughout 2015. However, real GDP growth for all of 2014 is expected to reach just 2.0% on a Q4/Q4 basis due to a sizable decline early in the year. The 2014 annual growth rate would thus be a deceleration from the 3.1% rate in 2013. The consensus of the panel is that economic growth will rebound to 2.9% in 2015. Measured on an annual average basis, real GDP growth is expected to increase 2.1% in 2014 and 3.0% in 2015.

“These views reflect tempered expectations compared to those reported in NABE’s previous full outlook survey released in June, but still are stronger than those expressed in an abbreviated supplemental survey conducted in early July following the release of extensively revised first-quarter data. Panelists are more optimistic in their forecasts for business fixed investment, government outlays, and international trade activity than they were in June, but their expectations for consumer spending and residential investment are lower, citing weak income growth and difficulty in accessing credit as primary factors hampering growth in those categories.”

“Consistent with median forecasts of payroll growth of more than 200,000 jobs per month, a decline in the unemployment rate to 5.7% by the end of 2015 and rising inflation, a large majority of panelists—69%—believe the Federal Reserve will begin to raise the federal funds rate target in the second or third quarters of next year,” said NABE Outlook Survey Chair Timothy Gill, deputy chief economist of the National Electrical Manufacturers Association. “The median federal funds rate forecast at the end of 2015 is 0.845%, slightly higher than in June. In contrast, the 10-year Treasury note yield is now forecasted to be 3.5% at the end of 2015, lower than the 3.75% expected in June.” 

HIGHLIGHTS:

• Quarterly economic growth for the balance of 2014 and throughout 2015 is forecasted to be slightly weaker than in the June Outlook. Panelists now expect a 3.0% annualized rate of real GDP growth in the third quarter of 2014 and a 3.1% rate of growth in the fourth, following a volatile first half of the year in which the economy contracted by 2.1% in the first quarter but then grew at a strong 4.2% pace in the second. Growth in subsequent quarters is expected to fall just short of 3%. The June forecast anticipated that annualized growth would run slightly in excess of 3% through the end of 2015.
• The median forecast for real GDP growth from the fourth quarter of 2013 to the fourth quarter of 2014 has been revised significantly downward to 2.0% from 2.5% in June, but is still higher than the 1.6% forecast reported in a supplemental Outlook Survey conducted in July. The median forecast for 2015 growth (Q4/Q4 basis) slipped to 2.9% from 3.1% in June. The median real GDP forecast on an annual average basis declined to 2.1% from 2.5% in June (but was higher than the 1.6% reported in the July supplement) and to 3.0% from 3.1% in June. Real GDP advanced 2.2% in 2013 on an annual average basis. (The supplemental survey followed a report that real GDP declined 3.5% in the first quarter, rather than -1.0% as estimated at the time of the June Outlook. The first-quarter estimate was later revised to -2.1%.)
• The median of the five most pessimistic responses for 2014 real GDP growth (Q4/Q4 basis) is 1.5%, while the median of the five most optimistic responses is 2.5%. The range of forecasts for 2015 is broader, with the median of the five lowest at 2.3% 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%.