From a small northwestern observatory…

Regular readers of this blog will note that I’m enamored with the Philadelphia FED’s surveys of professional economists. They actually do two surveys — one quarterly series, which has a slightly larger survey base, but doesn’t go into as much depth; and the semi-annual Livingston Survey, which has a smaller audience but a lot of detail. For direct access to the current Livingston Survey, click here.

Bottom line? The first half of 2011 isn’t as rosy as economists previously predicted, but they’re still modestly bullish on the second half of the year. Currently, the annualized GDP estimate is an anemic 2.2%, down from an almost-equally boring 2.5% in the December survey. However, GDP growth in the second half of the year is expected to be even stronger than previously thought, with second-half growth forecasted at an annual rate of 3.2%. More significantly, previous estimates of unemployment are being cut. In the last survey, economists collectively projected that year-end 2011 unemployment would stand at 9.2%; today, that projection has been lowered to 8.6%. Of course, these projections were surveyed before the most recent nasty jobs-growth reports, so everyone who uses this data is taking a bit of a “wait and see” prospective.

The nasty news is on the inflation front — prior estimates put the consumer price index rise from 2010 to 2011 at 1.6%; current consensus thinking is 3.1%. While that doesn’t sound like much, the producer price index is even worse — a prior estimate of 1.9% is now being revised to 6.3%. Both indices are expected to settle down in 2012, but we can only hope.

With that in mind, projections of T-Bill and T-Note rates are, not unexpectedly, higher than previously thought. The current 3-month T-Bill rate (as of this morning) is 0.04%. Current thinking is that we will end June in the range of 0.08%, but that by the end of 2012, 3-month bill rates will be up to 1.58%. Ten-year Note rates will follow a similar, but slightly flatter pattern (representing a slight expected flattening in the yield curve). The 10-year composit Note rate as of this morning (according to the Treasury Department) was 3.77%. Economists actually project it will decline a bit by month-end (to 3.25%), then rise slightly by the end of 2012 to 4.5%.