Slow Growth Predicted for Next Two Years, Consumers Expect Lingering Inflation
Slow Growth Seen for Next Two Years
Lingering inflation and the rising likelihood of lowered employment ahead are curbing prospects for U.S. economic growth for at least the next two years, according to the Federal Reserve Bank of Philadelphia’s latest quarterly survey of 38 professional forecasters.
Forecasters predict the economy will expand at an annual rate of 1% in the fourth quarter, down from 1.2% in the previous survey. “Over the next three quarters, the panelists also see slower output growth than they predicted three months ago,” the Philadelphia Fed said in a statement Monday.
The forecasters on average now expect real gross domestic product to increase 0.7% in 2023 and 1.8% in 2024, both lower than in the previous quarterly survey. The latest preliminary Commerce Department data showed GDP growing at an annual rate of 2.6% in this year’s third quarter, following two consecutive quarters of declining GDP, and economists and other analysts are at odds over whether that means a recession is imminent.
The Philadelphia Fed survey report said the lowered growth expectations are derived in part from conditions now signaling moves toward higher unemployment, as the Federal Reserve boosts interest rates to lower consumer demand and tame inflation. Forecasters predict unemployment will increase to 4.2% in 2023 from its current 3.7% “and remain little changed over the following two years,” the statement said.
Forecasters now expect the U.S. economy to add 217,600 jobs in the current quarter, up from the prediction made in the last survey regarding the fourth quarter, but projections have been downsized for the coming three quarters. Nonfarm jobs are expected to grow at a monthly rate of 143,600 in 2023, after averaging 492,800 in 2022.
Consumers Expect Lingering Inflation
Consumers remain unconvinced that higher inflation can be fully contained anytime soon, according to the latest monthly survey of expectations by the Federal Reserve Bank of New York.
The regional Fed said median responses to its October survey show consumers expect annual inflation, which ended the month at 7.7%, to be at 5.9% a year from now and 3.1% three years from now, both higher than predicted in the prior monthly survey. The Federal Reserve has indicated it plans to keep raising its key borrowing rate until inflation is brought closer to 2%.
The New York Fed survey reflected a mix of optimism and pessimism about the months ahead, with 42.9% of respondents expecting unemployment to be higher one year from now, the highest reading since April 2020. At the same time, respondents expect their work-based earnings to grow 3% in the coming year, a slight increase from the month-earlier prediction.
Also, the median expected growth in overall household income for the coming year was 4.3%, up from 3.5% in the month-earlier survey. But the percentage of households saying it is harder to obtain credit than a year ago hit a series high of 56.7%, with a similar deterioration in perceived prospects for obtaining credit in the coming year.
The percentage of respondents thinking U.S. stock prices will be higher a year from now was 33.9%, down 1.4 percentage points from a month earlier. Consumers expect gas prices to rise by a median of 4.8% in the coming year — up 4.3 percentage points from a month earlier and the biggest jump since the New York Fed began tracking the metric.