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Business economists: Slower US growth than expected in second half

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Business economists:  Slower US growth than expected in second half

Significant reduction in expectations considered a “soft patch.”

Adding to a stream of downgraded expectations, the National Association for Business Economics reported today that its monthly survey of economists indicated that the median forecast for real GDP growth from the fourth quarter of 2014 to the fourth quarter of 2015 is 2.3%—sharply lower than that reported in the March survey. The forecast for the annualized growth rate for 2015 is also lower—down to 2.4% from 3.1% in March. These downward revisions to the forecast for 2015 have been influenced by weakness in first-quarter GDP and lower expectations for the second quarter compared to those reported in the March survey.

The median forecast for 2016 is unchanged at 2.9%. The annualized forecast for 2016 is unchanged at 2.9%.

"Quarterly growth is expected to rebound to 3.2% in the third quarter of 2015 before decelerating to 2.8% throughout 2016." 

The median forecast for real GDP growth for the second quarter of 2015 fell to 2.5% at a seasonally adjusted annual rate, down from 3.0% in March. Quarterly growth is expected to rebound to 3.2% in the third quarter of 2015 before decelerating to 2.8% throughout 2016. These forecasts are in line with those reported in March.

The survey results reflect a slowing—but still robust—pace of improvement in the labor market. The median forecast for nonfarm payroll growth in 2015 declined from 251,000 in March to 217,000 in June, while the median forecast for 2016 slipped from 216,000 in March to 207,000. Payrolls expanded at a 260,000 monthly clip in 2014. Expectations for unemployment are similar to those expressed in March, with the unemployment rate anticipated to decline to 5.2% on average during the fourth quarter of 2015 and to 4.9% on average during the fourth quarter of 2016.

“This latest soft patch, coupled with a benign inflation outlook, has led to a shift in expectations regarding monetary policy,” according to NABE Outlook Survey Chair Timothy Gill, deputy chief economist of the National Electrical Manufacturers Association. “Seventy-four percent of panelists believe the Federal Reserve will begin raising short-term interest rates in the third quarter of 2015, with an additional 21% expecting a hike in the fourth quarter of 2015 or later. Only 4% expect a second-quarter 2015 rate increase. In March, one-third of the panel predicted a second-quarter increase, 55% expected a third-quarter increase, and only 12% believed an initial rate hike would come in the fourth quarter of 2015 or later. The federal funds rate is forecasted to reach 0.5% by the end of 2015 and 1.625% at the end of 2016, lower than the estimates of 0.75% and 2.0%, respectively, reported in March. Similarly, the yield on 10-Year Treasury notes is projected to be 3.1% by year-end 2016, lower than the 3.25% projected in March.”

“Despite the disappointing start to 2015, the NABE panel foresees a number of positives in the economic picture,” adds Silvia. “Consumer outlays, residential investment, and government expenditures are all expected to increase at a faster pace in both 2015 and 2016 compared to last year. Payrolls are expected to expand by more than 200,000 per month through the end of next year, and inflation is expected to remain tame.”

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