NABE Outlook December 2012: NABE Panel Expects Modest But Accelerating Growth in 2013

Summary: “The panelists expect modest growth in the economy in 2013 as a whole, which accelerates steadily as the year progresses,” said Dr. Nayantara Hensel, Chair of the NABE Outlook Survey and Professor of Industry and Business at National Defense University. “The panelists forecast little improvement in consumption growth, significantly reduced growth in investments in nonresidential structures, equipment, and software, and reduced growth in corporate profits and industrial production. Nevertheless, on a positive note, the panelists suggest that the improvement in the housing market is likely to continue. They do not anticipate a significant increase in inflation next year and forecast some improvement in the labor market. Although the bulk of the panelists suggest that Hurricane Sandy may reduce fourthquarter 2012 GDP growth, it is likely to increase first-quarter 2013 GDP growth. The panelists also suggest some reduction in the US 2013 federal budget deficit relative to the 2012 federal budget deficit. A portion of the panelists expect that the European financial crisis will worsen in that Spain, Italy, and Ireland may require bailout packages (or additional bailout packages) and one-fifth of the panelists suggest that Greece could break away from the euro currency in 2013.”

Highlights

• Panelists do not anticipate a significant improvement in annual average growth in real GDP for 2013 relative to 2012, but suggest that stable, moderate growth will continue. They forecast that annual average growth for real GDP will be 2.2% in 2012 and 2.1% in 2013. Nevertheless, they expect that the annualized growth in GDP will increase significantly during 2013, such that it will reach 3% by the fourth quarter of 2013.
• The panelists suggest that the annual average growth in real GDP in 2012 has been driven by high growth in residential investment, high growth in nonresidential structures, and strong growth in nonresidential equipment and software. They forecast growth in these expenditures for 2012 as 12%, 9.2%, and 6.6%, respectively.
• The bulk of the panelists suggest that although Hurricane Sandy may reduce fourth-quarter 2012 GDP growth, it is likely to increase first-quarter 2013 GDP growth. About 86% of the panelists estimate that Hurricane Sandy will reduce fourth-quarter 2012 GDP growth; about 30% forecast that it will reduce fourth-quarter GDP growth by less than 0.2 percentage points, while 50% suggest that it will reduce fourth-quarter GDP growth by between 0.2 percentage points and 0.5 percentage points. About 86% of the panelists believe that Hurricane Sandy will increase first-quarter 2013 GDP growth. About 50% believe that it will increase first-quarter 2013 GDP growth by less than 0.2 percentage points, while almost 30% believe that it will increase first-quarter 2013 GDP growth by between 0.2 percentage points and 0.5 percentage points.
• Panelists suggest that the high growth in nonresidential structures and in nonresidential equipment and software is likely to slacken in 2013 relative to 2012, although the strong growth in residential investment is likely to continue. Panelists forecast that growth in nonresidential structures will slow from 9.2% in 2012 to 3.1% in 2013 and that growth in nonresidential equipment and software will moderate from 6.6% in 2012 to 5% in 2013. Residential investment will continue to grow at 12% in 2013.
• The panelists are optimistic that improvements in the housing market will continue. The panelists forecast that housing starts will continue to increase in 2013, as well as that home prices will rise, both of which are consistent with their forecasts of continued growth in residential investment in 2013. Panelists forecast that housing starts will increase between 2012 and 2013 and suggest that housing starts will be 0.93 million units by 2013, which is much higher than their forecast of 0.77 million housing starts for 2012 and the actual 0.61 million units of housing starts in 2011. Moreover, home prices are forecast to increase by 3% in 2012 and by 3.5% in 2013, which is a substantial rebound from the 2.9% fall in house prices in 2011, as measured by the change in the Federal Housing Finance Agency (FHFA)’s index of home prices in the fourth quarter of a given year from the fourth quarter of the prior year.
• Panelists forecast little improvement in personal consumption expenditures. They suggest that the growth in personal consumption expenditures for 2013 will be 2%, which is less than the 2.5% growth seen in 2011, and only slightly higher than their forecast of 1.9% growth for 2012. Nevertheless, on a positive note, the improvement in light vehicle sales since 2011 is likely to continue. In 2011, 12.7 million units of light vehicles were sold, and panelists forecast that light vehicle sales will increase from 14.3 million units in 2012 to 14.8 million units in 2013. 
• Panelists suggest more sluggish growth in the corporate sector next year relative to this year. This is reflected in forecasts of slower growth in after-tax corporate profits for 2013 relative to 2012, as well as slower growth in industrial production. Panelists suggest that after-tax corporate profits will grow at 5% in 2013, which is lower than the forecasted 8.5% growth for 2012, but still higher than the actual growth in profits of 2.2% in 2011. They also suggest that industrial production will grow at 2.6% in 2013, rather than their forecast of 3.7% in 2012, both of which are lower than actual industrial production growth in 2011 of 4.1%.
• Panelists do not anticipate an increase in inflation next year. This is consistent with their forecast that the Fed is unlikely to increase rates in 2013 and that the Federal funds target rate of 0.125% will remain unchanged. They forecast that growth in the consumer price index will remain at 2.1% in both 2012 and 2013. Furthermore, they suggest little change in the growth of the implicit GDP deflator, another measure of inflation, between 2012 and 2013. Moreover, they suggest that oil prices will not increase significantly between 2012 and 2013. Indeed, the panelists suggest a December 2012 average of $89.50 per barrel for oil prices and a December 2013 average of $93.20 per barrel, both of which are much lower than the actual December 2011 average of $98.60 per barrel.
• The panelists suggest improvement in the labor market next year. They forecast that the annual average civilian unemployment rate will be 7.7% in 2013, which is lower than their annual average forecast for 2012 of 8.1%, and which continues the downward trend from the annual average of 9% unemployment in 2011. Moreover, nonfarm employment is expected to grow from their 2012 forecast of an average increase of jobs per month to an increase of 165,000 jobs per month in 2013. Wages and benefits also are expected to accelerate slightly, as measured by an increase in forecasted growth in nonfarm business compensation per hour, from a forecast of 2.4% growth in 2012 to a forecast of 2.6% growth in 2013. Finally, labor productivity is expected to increase. Panelists forecast nonfarm business output per hour will grow 1.2% in 2012 and 1.5% in 2013, both of which are improvements over the actual 0.7% growth in 2011.
• Panelists suggest that the federal deficit may show some improvement between 2012 and 2013, reaching -$900 billion in 2013, down from -$1.3 trillion in fiscal 2011 and -$1.09 trillion in fiscal 2012. About three-quarters of the panelists believe that the Social Security payroll tax reduction of 2 percentage points will expire on schedule at the end of 2012 and will fully revert to previously specified levels. Almost 90% of the panelists believe that Congress will mitigate additional tax burdens for middle-class taxpayers regarding the Alternative Minimum Tax by passing an inflation-patch for AMT tax rates since the previous one expired at the end of 2011. Almost 90% of the panelists believe that sequestration will be deferred such that Congress, beginning in January, can begin to develop alternative plans for spending cuts. Only one-fifth of the panelists believe the Bush tax cuts will be held at the current levels for another year.
• Panelists forecast an improvement in the S&P 500 and also suggest that Treasury yields may rise next year. The panelists forecast that the S&P 500 index will increase to 1501 by the end of December 2013, which is higher than the panelists’ forecast of 1423 by the end of December 2012, and which is higher than the actual index of 1258 at the end of December 2011. Panelists also suggest that the 10-year Treasury note yield at the end of 2013 will be 2.25%, which is higher than their forecast for year-end 2012 yield of 1.70%, and higher than the actual year-end 2011 yield of 1.89%.
• The respondents expect the dollar to remain stable between 2012 and 2013, as reflected in little change in their forecasts for both the $/euro exchange rate between 2012 and 2013 and in the trade-weighted value of the US$. Net exports are forecast to remain similar between 2012 and 2013, at -$417 billion in 2013 and at -$413 billion for 2012. The trade balance in goods and services is also forecast to remain similar between 2012 and 2013, at -$540 billion for 2012 and at -$533 billion for 2013. The panelists suggest that growth in exports and imports will increase between 2012 and 2013 but will grow more slowly than in 2011. They forecast that exports will grow at 3.3% for 2012 and at 4.1% for 2013, while they forecast that imports will grow at 2.9% in 2012 and 3.5% in 2013.
• The panelists expect that the European financial crisis will worsen next year. Almost half of the panelists believe that Spain will require a larger bailout package in 2013 than was previously anticipated. Almost one-third of the panelists believe that Italy will receive a “bailout” package in 2013. About one-fifth of the panelists believe that Ireland will require a second bailout package in 2013. Only one-fifth of the respondents believe that Greece will break away from the euro currency in 2013. Indeed, over three-quarters of the panelists believe that Greece will fail to meet its budget and policy targets, but that the Troika will either relax its targets and/or that some form of financial assistance will continue.

Dec 2012 NABE Outlook Details (Members only)

With their permission, NABE panelists who responded to the December, 2012 NABE Outlook survey are:

Michael R. Englund, Action Economics, LLC

Thomas Kevin Swift, American Chemistry Council

Chris Rupkey, Bank of Tokyo-Mitsubishi UFJ

Richard Yamarone, Bloomberg, LP

Elena Bondarenko, Cassidy Turley

Bill Watkins / Jeff Speakes / Dan Hamilton, Center for Economic Research

and Forecasting at California Lutheran University

Constantine Soras, CGS Economic Consulting, Inc.

Esmael Adibi, Chapman University

Xiaobing Shuai, Chmura Economics & Analytics

Jan Reid, Coast Economic Consulting

Robert Fry, DuPont

Susan Sterne, EAA Inc.

James W. Kleckley, East Carolina University

James P. Meil, Eaton Corporation

Anne Ramstetter Wenzel, Econosystems

Michael R. Paslawskyj, FDIC

Gene Huang, FedEx Corporation

Lynn Reaser, Fermanian Business and Economic Institute

Brian Wesbury / Robert Stein, First Trust Advisors

Jenny Lin, Ford Motor Co.

Rajeev Dhawan, Georgia State University

Gary Ciminero, GLC Financial Economics

J. Paul Horne, Independent International Market Economist

Jeff Werling / Margaret McCarthy, Inforum - University of Maryland

John Pope, Investment Economics

Richard Rippe, ISI Group

Sandy Batten / Robert Mellman, JP Morgan

Jack Kleinhenz, Kleinhenz & Associates

Brian R. Horrigan, Loomis Sayles & Co, LP

Chris Varvares, Macroeconomic Advisers

Parul Jain, MacroFin Analytics

Diane Swonk / Adolfo Laurenti, Mesirow Financial

Albert E. DePrince, Jr., Middle Tennessee State University

Mark Zandi, Moody’s Analytics

Joel L. Naroff, Naroff Economic Advisors

Stephen Latin-Kasper, National Truck Equipment Association

David W. Berson, Nationwide Insurance

Charles Steindel, New Jersey Department of the Treasury

Bill Dunkelberg, NFIB

Carl Tannenbaum, Northern Trust

James F. Smith, Parsec Financial

Stephen Gallagher, Societe Generale

Steve Taddie, Stellar Capital Management

James Marple, TD Bank

Martin A. Regalia, U.S. Chamber of Commerce

Sean Snaith, University of Central Florida

John Silvia, Wells Fargo

Jay N. Woodworth, Woodworth Holdings, LTD