–2012 GDP Projection Unrevised At +2.3%
–Expect Q2 Real GDP to Grow by 2.4% vs Prev Estimate of +2.3%
–Panelists Trim Unemployment Forecasts For This Year, 2013, 2014
–Non-farm Payrolls Expected to Average 171,900/Month In 2012

By Brai Odion-Esene

WASHINGTON (MNI) – The Federal Reserve has set a 2% annual
inflation rate as its explicit longer-run objective, and a Philadelphia
Fed survey published Friday showed 75% of respondents believe inflation
will be in line with the central bank’s target.

And while the outlook for U.S. economic growth in the second
quarter was revised slightly higher, growth projections from Q3 to the
first quarter of 2013 were cut, according to the Philadelphia Federal
Reserve’s second quarter survey of 31 professional forecasters.

The economists’ outlook for the labor market improved, however,
predicting a faster pace of decline in the unemployment rate between
this year and 2015 compared to the previous survey.

In this survey, the Philadelphia Fed asked the panelists whether
their long-run forecasts for inflation in the price index for personal
consumption expenditures are consistent with the Federal Open Market
Committee’s longer run goal of 2%.

“Nearly three-quarters of the 31 panelists who answered the
question indicated that their long forecasts for PCE inflation do not
differ in an economically meaningful way from the FOMC’s goal,” the
Philadelphia Fed said.

It noted, however, that 8 respondents indicated that they do not
believe the FOMC will achieve its goal. Why?

“Some thought the FOMC would be too slow to tighten monetary policy
at the appropriate time. They worried about the political pressure the
FOMC would face as the time approaches for tighter monetary policy.
Others worried that some members of the FOMC have a bias toward higher
inflation or asymmetric preferences for inflation above and below target
and would thus be reluctant to vote for tighter monetary policy in the
face of future adverse supply shocks. One panelist questioned the
credibility of the FOMC’s inflation target and pointed to the U.S.
inflation experience of the 1970s as a source for concern,” the report
said.

The outlook for growth in the U.S. economy “was little changed”
from the first quarter survey, the Philly Fed said in its summary of the
survey results. “On an annual-average over annual-average basis, the
forecasters see real GDP growth for 2012 and 2013, at 2.3% and 2.7%,
respectively.”

These estimates are the same as those in the previous survey.

The panelists expect real GDP to grow at an annual rate of 2.4%
this quarter, up from the previous estimate of 2.3%. Over the next three
quarters, however, they expect GDP growth to average 2.6%, down from the
previous average of 2.8%.

The forecasters predict real GDP will grow 3.1% in 2014 compared to
the previous estimate of 3.0%, and 3.4% in 2015.

“The forecasters have revised downward the chance of a contraction
in real GDP in any of the next quarters in 2012. For the current
quarter, they predict a 9.8% chance of negative growth, down from 13.4%
in the survey of three months ago,” the Philly Fed said.

With regard to the employment picture, the Philly Fed said
“projections for stronger conditions in the labor market accompany the
outlook for real output.”

The survey projects the unemployment rate to be an annual average
of 8.1% in 2012, before falling to 7.7% in 2013, 7.2% in 2014, and 6.6%
in 2015. The estimates for 2012, 2013, and 2014 are 0.2 percentage point
lower than the projections in the last survey.

Forecasters are also expecting a pickup in the pace at which jobs
are added over the next four quarters compared to the last survey.

They see nonfarm payroll employment growing at a rate of 164,900
jobs per month this quarter (compared to 141,900 estimated in the last
survey) and 170,000 jobs per month next quarter — compared to the Q1
estimate of 145,200.

The forecasters’ projections for the annual-average level of
nonfarm payroll employment suggest job gains at a monthly rate of
171,900 in 2012 — up from 144,100 in the previous survey — and 175,700
in 2013.

This is still nowhere near the 200,000 jobs per month many say are
needed to reduce the massive amount of unemployed Americans.

On the inflation front, the survey’s predictions for headline and
core inflation indicate forecasters expect a small rise in near-term
inflation.

They predict current-quarter headline CPI inflation to average
2.1%, up from 2.0% in the last survey. Their prediction for
current-quarter headline PCE inflation is 2.0% compared to the previous
estimate of 1.7%.

Current-quarter core PCE is projected to rise by 1.8%, while core
CPI is expected to come in at 2.1% — an increase from 1.8% in the
previous survey.

Measured on a fourth-quarter over fourth-quarter basis, headline
CPI inflation is expected to average 2.3% in 2012, up from 2.0% in the
last survey; 2.1% in 2013, down from 2.2%; and 2.5% in 2014, up from
2.3%.

Forecasters expect fourth-quarter over fourth-quarter headline PCE
inflation to average 2.1% in 2012, up from 1.9% in the last survey; 2.0%
in 2013, unchanged from the previous estimate; and 2.2% in 2014, up from
2.1%.

Over the next 10 years, the forecasters expect headline CPI
inflation to average 2.48% at an annual rate. This estimate is higher
than that from the last survey, when the forecasters thought headline
CPI inflation from 2012 to 2021 would average 2.3%.

The Philadelphia Fed noted there is also a small increase in the
corresponding estimates for 10-year annual-average headline PCE
inflation, now at 2.20% from 2.15% previous.

** MNI Washington Bureau: 202-371-2121 **

[TOPICS: M$U$$$,MMUFE$,MGU$$$,MFU$$$,MAUDS$]