NABE Panelists Forecast a Gradual Acceleration in Economic Expansion

The September 2013 NABE Outlook presents the consensus of macroeconomic forecasts from a panel of 43 professional forecasters (see last page for listing). The survey, covering the outlook for 2013 and 2014, was conducted August 8–August 20, 2013. The NABE Outlook originated in 1965 and is one of three surveys conducted by NABE; the others are the NABE Industry 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 2,300 members and 37 chapters nationwide. Dr. Nayantara Hensel, National Defense University; Ken Simonson, Associated General Contractors of America; Richard Wobbekind, Leeds School of Business, University of Colorado at Boulder; and Clare Zempel, Zempel Strategic conducted the analysis of the views of the NABE panelists 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 reprinted in whole or in part with a proper citation to NABE.

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.
• The federal deficit is expected to be -$680 billion in Fiscal Year (FY) 2013 and -$650 billion in FY2014. This is a significantly lower deficit than -$1087 billion in FY2012. The panelists have lowered their deficit projections for 2013 from -$868 billion in the May survey to -$680 billion in the current survey. Real government consumption expenditures and gross investment are expected to decline by 2.1% in 2013, which is less of a decline than was suggested in the May survey of -2.3%, although it is a greater decline than the actual -1.7% in 2012. Panelists expect real government consumption to decline at a milder rate of -0.5% in 2014.
• The panelists suggest that consumption will continue to grow slowly and to expand in 2014.The panelists suggest that real personal consumption expenditures are likely to grow at 2% for 2013 (down from the May survey’s forecast of 2.3%), and at 2.6% by 2014 (unchanged from the May estimate). This is consistent with the downward revision in the estimates of industrial production, which the panelists in this survey suggest will grow at 2.5% in 2013, while in the May survey, they suggested that it would grow at 3.1%. The panelists also revised their estimates for industrial production growth in 2014 from 3.5% in the May survey to 3.1% in the current survey. Similarly, nonfarm business output is estimated to grow at 0.8%, which is slightly higher than last year, but represented a downward revision from the prior survey at 1.3%. Light vehicle sales are estimated to grow at 15.5 million units for 2013, which is an increase from 14.4 million units last year, and less than the estimated 16 million units in 2014.
• The panelists suggest a less optimistic view than in the May survey regarding real private investment in nonresidential structures, equipment and software. Nonresidential structures are estimated to decline by 1.1% in 2013, which is a significant reduction in the panelists’ estimate in the May survey of 4.6% growth and a significant reduction from the 10.8% growth in 2012. The panelists suggest, however, that nonresidential structures will grow at 4.9% in 2014. Nonresidential equipment and software are estimated to grow at 4% in 2013 (a downward revision from 5.3% in the prior survey) and at 6% in 2014 (a downward revision from 6.8% in the prior survey).
• The panelists estimate that housing growth will continue. They suggest that real residential investment will grow 13.8% in 2013, which is an increase from the 12.1% increase in residential investment in 2012, and that it will grow 14% in 2014. Moreover, housing starts are estimated to grow at 0.95 million units in 2013 and at 1.16 million units in 2014, which is an improvement from 0.78 million housing starts in 2012. Home prices are likely to grow 6% in 2013, which is an upward revision from the May survey, when panelists suggested a 4.4% increase. Moreover, panelists suggest that home prices will grow at 4.8% in 2014, which is an increase from their 4% estimate for 2014 in the last survey. Nevertheless, the slower growth in house prices in 2014 relative to 2013 suggest that the possibility of higher mortgage rates may reduce the growth in house prices since the panelists believe that there is an 80% chance that the Fed will reduce asset purchases in 2014, which could lead to higher mortgage rates.
• The panelists suggest that Treasury yields are likely to rise. They forecast that the 10-year Treasury yield will be at 2.76% at the end of 2013, which is higher than the 2.20% in the prior survey and higher than the actual 1.78% in December 2012. The panelists suggest that the 10-year Treasury yield will be 2.65% at the end of the third quarter of 2013, 2.76% in the fourth quarter of 2013, and 3% by the second quarter of 2014, reaching 3.29% in the fourth quarter of 2014.
• Inflation is expected to remain slow. The panelists suggest that the consumer price index will grow at 1.6% for 2013, accelerating to 2.1% in 2014. Their forecasts indicate that the price index for personal consumption expenditures less food and energy is likely to grow at 1.3% in 2013 and 1.7% in 2014, while oil prices are expected to average $100 for December 2013 and December 2014.
• The labor market is expected to show improvement. The civilian unemployment rate is forecast to be 7.5% for 2013 and 7% for 2014, which is an improvement from the actual 8.1% unemployment rate in 2012. Indeed, the civilian unemployment rate is estimated to average 7.4% during the third quarter of 2013, 7.3% in the fourth quarter of 2013, and 6.8% by the fourth quarter of 2014. Nonfarm employment is expected to increase by 189,000 on average each month in 2013, which is an improvement from the estimate in the prior survey of the average monthly change of 168,000. The panelists suggest that the average monthly change of nonfarm employment will be 199,000 in 2014. Nonfarm business output per hour is expected to increase from 0.8% growth in 2013 to 1.7% growth in 2014. While the panelists did not change their forecast of nonfarm business output for 2014 relative to the prior survey, they did reduce their estimate of output per hour in the May survey, which was 1.3%. Nonfarm business compensation per hour is estimated to grow at 1.9% in 2013 and 2.4% in 2014, which is higher than actual 2012 growth in nonfarm business compensation at 1.5%.
• The panelists suggest that net exports will total -$432 billion in 2013 and -$438 billion in 2014, virtually unchanged from -$431 billion in 2012. They suggest that both exports and imports will grow at around 2% in 2013 and between 5.4% and 5%, respectively, in 2014. The dollar is expected to average $1.31 per euro in 2013 and $1.30 per euro in 2014.
• The panelists estimate that corporate profits after taxes and the S&P 500 will continue to rise. Corporate profits after taxes are expected to grow 5% in 2013 and 7.2% in 2014. The S&P 500 Index, which closed on December 31, 2012, at 1426, is expected to increase to 1700 in 2013 and at 1764 in 2014.
• The panelists are not significantly concerned that Greece will break away from the euro in 2013 and that Italy, Spain, or Ireland will receive a “bailout” package. They believe that there is a 10% chance that Greece will break away from the euro, a 13% chance that Ireland will require a “bailout” package and a 17%-18% chance that Italy and Spain, respectively, will require a “bailout” package. Moreover, the panelists suggest that there is a 70% probability that no current members will leave the eurozone over the next two years and a 25% probability that one or more current members will leave the eurozone over the next two years. The panelists believe that there is only a 5% chance that there will be a complete breakup of the eurozone.

With their permission, NABE panelists who responded to the February, 2013 NABE Outlook survey are:

Benjamin Engen, Action Economics
Kevin Swift, American Chemistry Council
Chris Rupkey, Bank of Tokyo-Mitsubishi UFJ
Dan Hamilton, California Lutheran University
Elena Bondarenko, Cassidy Turley
Esmael Adibi, Chapman University
James Glassman, Chase
Jan Reid, Coast Economic Consulting
Jim Kleckley, College of Business, East Carolina University
Robert C. Fry, Jr., DuPont
Douglas Lee, Economics from Washington
Anne Ramstetter, Econosystems
Doug Duncan, Fannie Mae
Michael R. Paslawskyj, FDIC
Robert Stein, First Trust Advisors, LP
Chyi-Ing (Jenny) Lin, Ford Motor Company
Gary Ciminero, GLC Financial Economics
Jeff Werling & Ronald Horst, Inforum-University of Maryland
John Pope, Investment Economics
Richard Rippe, ISI Group
Rajeev Dhawan, J. Mack Robinson College of Business- Georgia State University
Bill Cheney, John Hancock Financial
Brian Horrigan, Loomis, Sayles & Company
Lucas Zalduendo, Macroeconomic Advisers, LLC
Parul Jain, MacroFin Analytics LLC
David Nice, Mesirow Financial
Joel L. Naroff, Naroff Economic Advisors
Chad Moutray, National Association of Manufacturers
William Dunkelberg, National Federation of Independent Business
Stephen Latin-Kasper, National Truck Equipment Association
David W. Berson, Nationwide Insurance
Carl Tannebaum, Northern Trust
James F. Smith, Parsec Financial
Lynn Reaser, Point Loma Nazarene University
Michael Dueker, Russell Investments
Stephen Gallagher, Societe Generale
Steve Taddie, Stellar Capital Management
James Marple, TD Bank Group
Stuart Hoffman, The PNC Financial Services Group
Richard Wobbekind, University of Colorado, Boulder
Martin A Regalia, U.S. Chamber of Commerce
J. Paul Horne, Verizon
John Silvia, Wells Fargo


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