Economic Outlook

Economic Outlook

Consensus Economics, Inc., publisher of Consensus Forecasts - USA, forecasts real GDP to increase at a seasonally adjusted annual rate of 2.5% in the first quarter of 2011, then at a rate of 2.8% in the second quarter.  They expect GDP to grow 2.7% in 2011, 3.3% in 2012, and 3.4% in 2013.  In the long term, they report that real GDP will grow by an average annual rate of 2.6% between 2016 and 2019. Every month, Consensus Economics surveys a panel of 28 prominent U.S. economic and financial forecasters (“the forecasters”) for their predictions on a range of variables including future growth, inflation, current account and budget balances, and interest rates.

The forecasters polled by Consensus Economics believe unemployment will average 9.6% in first quarter of 2011, before averaging 9.5% in the second quarter. They forecast unemployment will average 9.4% for all of 2011.

According to the forecasters, consumer prices will increase 1.5% in 2011, 2.0% in 2012, and 2.1% in 2013.  In the long term,the forecasters report that consumer prices will grow at an average annual rate of 2.3% between 2016 and 2019. The forecasters project producer prices to increase 1.8% in 2011.  They expect real disposable personal income to grow 1.9% in 2011.

The forecasters believe interest rates on three-month Treasury bills and 10-year Treasury bonds will rise over the next year. According to the forecasters, the three-month Treasury bill rate will be approximately 0.2% at the end of March 2011, and then will rise to 0.3% by the end of December 2011.  The yield on the 10-year Treasury bond will be approximately 2.9% at the end of March 2011, and then will rise to 3.5% by the end of December 2011.

Nominal pre-tax corporate profits will be 6.7% and 7.5% in 2011 and 2012, respectively, according to the forecasters. They also believe industrial production will grew 3.9% in 2011 and 4.1% in 2012.

The 40 participants in The Livingston Survey (the “Survey”) released their newest predictions in December. The participants, who are surveyed by the Federal Reserve Bank of Philadelphia twice a year, project real GDP to grow at an annual rate of 2.5% between 4Q 2010 and 2Q 2011 (down from their previous estimate of 3.0%). They then expect GDP will increase at an annual rate of 2.9% between 2Q 2011 and 4Q 2011. They believe GDP will grow 2.8% annually over the next 10 years.

The Survey also noted that forecasts for the unemployment rate have been revised upward from their previous survey. They expect the unemployment rate to be about 9.4% by June 2011, up from their previous estimate of 9.1%. They expect unemployment to decrease to 9.2% by December 2011.

The forecasters in the Survey have lowered their predictions for consumer price (CPI) inflation. They expect CPI inflation to rise 1.6% in 2011, down from the previous estimate of 1.7%. They predict CPI inflation will rise 2.0% in 2012.  The Survey expects inflation (as measured by the consumer price index) to average 2.5% over the next 10 years, slightly higher than the forecast of 2.3% estimated in the prior Survey. The Survey expects producer price (PPI) inflation to increase 1.9% in 2011—down from the previous estimate of 2.4%—before increasing another 1.9% in 2012. 

The Survey predicts the interest rate on three-month Treasury bills to be 0.19% at the end of June 2011—revised down from their previous estimate of 1.21%. The Livingston forecasters predict that the rate will then rise slightly to 0.35% in December 2011 before rising to 1.63% in December 2012. The interest rate on 10-year Treasury bonds are predicted to reach 2.93% at the end of June 2011, down from the previous estimate of 4.28%. According to the Survey, it will then rise to 3.26% in December 2011 and to 4.00% in December of 2012.

The forecasters from the Survey have increased their previous projections for future S&P 500 values.  They expect the S&P 500 will be around 1,250.0 at the end of June 2011, before climbing to 1,298.5 by the end of December 2011.  They believe the S&P 500 will end 2012 at 1,350.0.

Consensus Economicsexpects the price for a barrel of WTI crude oil—which ended the forth quarter at $91.38—will decrease slightly. The forecasters believe WTI prices will be about $84.8 per barrel at the end of March 2011 and $88.4 per barrel at the end of December 2011.

The EIA forecasts that a barrel of WTI crude oil will be about $89 at the end of 2011. The EIA forecasts that the annual average price for motor gasoline will be $3.00 per gallon in 2011. They also forecast that U.S. residential retail electric prices will grow 0.9% during 2011.