From a small northwestern observatory…

Finance and economics generally focused on real estate

Philadelphia FED Survey

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One of my frequent economic touchstones is the quarterly survey of economic forecasters conducted by the Philadelphia FED. Obviously, they can’t pick “black swan” events (e.g. — COVID) but once the economy is in a steady state, they are usually very good at seeing intermediate term trends.

The improvement in sentiment from before the election is palpable. Their panel of forecasters project real GDP growth this quarter (that’s nominal growth minus inflation) at 3.2% annualized, with an overall growth at 4.7% in 2021 and 3.7% in 2022. These represent significant improvements over previous forecasts.

Unemployment will continue to nag us, but is on a downward trend. According to their forecasters, we should end this quarter with unemployment at 6.3%, trending down to 5.1% in early 2022. Non-farm job growth is projected at 223,400 per month this year. Inflation is expected to nudge up a bit, although that’s not entirely a bad thing coming out of a recession, as it indicates increased demand. The previous survey anticipated inflation at an annualized rate of 2.0% in early 2021, but now forecasters expect that at 2.5%. That said, the general projections for inflation for the coming decade, barring any flocks of black swans, is in the range of 2.2%. With that, 10-year treasuries are forecasted to average 2.8% over the coming decade, up from an early forecast of 2.7%.

Most interestingly, forecasters were also asked about the probability of another negative-GDP quarter this year (signaling a return to recession). Before the election, the average sentiment was a 20.4% chance of a quarterly GDP contraction this year. After the recession, this has nudged down to 19.1%. While that may not look like much of a change, it is a meaningful shift in forecasters’ sentiments. Survey respondents were also asked about economic output and productivity for the coming decade. A year ago, they projected the ten-year average annual productivity growth at 1.4%, while now they’ve raised the bar to 1.75%, a significant increase in their forecast of U.S. output and productivity.

Finally — and this is probably of most interest to our readers — the forecasters were asked about house prices this year and next. They looked at six different house price indices (see below), and forecasters projected median house price increases ranging from 4.7% to 7.9% this year, slowing somewhat to 3.5% to 5.3% next year.

2021 Median2022 Median
S&P CoreLogic Case-Shiller: US National6.8%4.5%
S&P CoreLogic Case-Shiller: Composite 10 metros4.7%3.9%
S&P CoreLogic Case-Shiller: Composite 20 metros7.5%5.0%
FHFA: Purchase Only (US Total)5.6%3.5%
CoreLoic: National HPI including distressed5.6%5.3%
NAR Median: Total Existing7.9%5.1%
Courtesy Philadelphia FED Survey

As usual, if we can answer any questions about this, or if you have any comments, please don’t hesitate to reach out!

John A. Kilpatrick, Ph.D., MAI —

Written by johnkilpatrick

February 15, 2021 at 10:11 am

Posted in Uncategorized

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