NABE Panelists Forecast a Gradual Acceleration in Economic Expansion

This is a public summary of the NABE Outlook.

Members can download the full survey here.

Summary

“The NABE panel forecasts a gradual acceleration in economic expansion, from a 2.3% rate of growth in inflation-adjusted gross domestic product in the third quarter of 2013 to 3.0% in the spring through the autumn quarters of 2014,” said Dr. Nayantara Hensel, chair of the NABE Outlook Survey. “The panelists suggest that there is an 80% probability that the Federal Reserve will reduce its asset purchase program in 2014 and that there is a 45% probability that the Fed will reduce both the monthly purchases of mortgage-backed securities and Treasurys in 2013. The panelists suggest that Treasury yields are likely to rise, which may be due to the potential that the Fed may reduce asset purchases. Inflation is expected to remain slow and the labor market is expected to show improvement. The panelists estimate that residential investment and housing starts will continue to grow, although home prices, which they estimate will continue to rise in 2013, may grow more slowly in 2014. The panelists also suggest that consumption will continue to grow slowly in 2013 and then expand in 2014. Moreover, they suggest a less optimistic view of nonresidential structures, equipment and software, and net exports. About 46% of the panelists believe that this year’s cuts in federal spending will reduce the growth rate of real GDP for the fourth quarter of 2013 by half a percentage point or less. Finally, the panelists believe that there is only a 10% probability that Greece will break away from the euro in 2013 and a 13% to 18% probability that Ireland, Italy, or Spain will receive a ‘bailout’ package. Moreover, the panelists believe that there is a 70% probability that no current members will leave the eurozone over the next two years.”

Highlights

• The NABE panel forecasts a gradual acceleration in economic expansion, from a 2.3% rate of growth in inflation-adjusted gross domestic product (GDP) in the third quarter of 2013 to 3.0% in the spring through the autumn quarters of 2014. Inflation-adjusted GDP is estimated to grow from the fourth quarter of 2012 to the fourth quarter of 2013 at 1.9%, which is an increase from 1.7% in 2012. The growth rate is estimated to increase to 3% in 2014. Nevertheless, the panelists have reduced their estimate of real GDP growth between the fourth quarter of 2012 and the fourth quarter of 2013 from the last survey, when they predicted 2.4% growth, rather than the 1.9% in the current survey. On a quarterly basis, the panelists foresee real GDP growth rising from a 2.3% annual rate in the third quarter of 2013 to 2.6% in the fourth quarter, 2.8% in the first quarter of 2014, and 3.0% in the remaining quarters of 2014.
• The panelists suggest that there is an 80% probability that the Federal Reserve will reduce its asset purchase program in 2014. Regarding 2013, the panelists believe that there is a 45% probability that the Fed will reduce both the monthly purchases of $40 billion in mortgage-backed securities and the monthly purchases of $45 billion in Treasurys and a 19% probability that these monthly purchases of Treasurys and mortgage-backed securities will not be reduced. They believe that there is a 20% probability that the asset purchases of the $45 billion in Treasurys will be reduced, with no change in the monthly purchases of the mortgage-backed securities; and a 15% probability that the asset purchase of mortgage-backed securities will be reduced, but that the purchases of Treasurys will be unchanged.
• About 46% of the panelists believe that this year’s cuts in federal spending (sequestration) will reduce the growth rate of real GDP for the fourth quarter of 2013 by half a percentage point or less. Indeed, 30% of the panelists believe that the growth rate of real GDP in the fourth quarter will be reduced by between 0.2 and 0.5 percentage points. About 16% of the panelists believe that the cut in federal spending will reduce the growth rate of real GDP by more than 0.5 percentage points and less than one percentage point. Only 9% of the panelists believe that the cuts in federal spending will increase the growth rate of real GDP by less than 0.2 percentage points and only 5% of the panelists believe that the federal spending cuts will increase the growth rate in real GDP by more than 0.5 percentage points and less than one percentage point.