SIFMA Roundtable of Economists Unveil Mid-Year 2015 Economic Outlook

Release Date: June 16, 2015
Contact: Carol Danko, 202.962.7390, [email protected]

2015 GDP Outlook Weakens From Last Year, Monetary Policy Remains Key Concern:
SIFMA Roundtable of Economists Unveil Mid-Year 2015 Economic Outlook

Washington, DC, June 16, 2015– SIFMA’s Economic Advisory Roundtable unveiled today its outlook for full year 2015 and 2016, forecasting that the economy will grow at a 2.2 percent rate in full-year 2015 and will grow 2.8 percent in 2016. A weak start in the first quarter of 2015 contributed to a lowered outlook for the remainder of the year.

“Despite the weak first quarter and downgraded outlook, the Roundtable still expects the FOMC to begin raising rates later this year,” said Ethan Harris, co-head of Global Economics Research, at Bank of America Merrill Lynch and chairman of SIFMA’s Economic Advisory Roundtable.

Monetary Policy:

Survey respondents were nearly unanimous in expecting the Fed’s first rate hike to occur in the third quarter of 2015, with the balance expecting the first rate hike in the fourth quarter of 2015. Respondents were similarly in agreement that labor market conditions were the most important factor in the FOMC’s decision to raise rates, followed by inflation or inflationary expectations and economic activity. One respondent noted, “Employment growth is the key to tightening. [N]othing else matters at this point.”

Although survey respondents agreed that the first quarter weakness was temporary, rather than permanent, most expected a downgrade of the FOMC’s economic forecast in its June outlook.

Asked when the Fed would begin to remove its accommodative reinvestment policy, all of the respondents expected this policy to wind down in 2016, with nearly 70 percent expecting it in the first half of 2016 and the remainder in the second half.

The Economy:

The median mid-year forecast called for 2015 gross domestic product (GDP) to grow by 2.2 percent on a year-over-year basis and by 1.9 percent on fourth quarter-to-fourth quarter basis, weaker than predicted in the end-year 2014 survey. On a quarterly basis, respondents expected 2Q’15 GDP growth to be 2.5 percent on an annualized basis, rising to 3.0 percent in 3Q’15 and 3.1 percent in 4Q’15.

For full-year 2016, GDP growth is forecast to rise to 2.8 percent on a year-over-year basis. Quarterly, annualized GDP growth is predicted to be 2.8 percent in the first and second quarters of 2016.

Employment is expected to continue to improve. Survey respondents forecast the full-year average unemployment rate to fall to 5.4 percent in 2015 and decline further to 4.9 percent in 2016. Employers are expected to add 2.7 million workers to their payrolls in 2015, falling slightly to 2.4 million in 2016. Expectations for consumer spending trends rose from predictions at end-year 2014, with personal consumption estimated to be 3.0 percent in 2015 and 2.9 percent in 2016.

Business capital investment growth estimates for full-year 2015 weakened considerably, dipping to 3.0 percent but improving to 4.6 percent in 2016.

The median forecast for “headline” inflation, measured by the personal consumption expenditures (PCE) chain price index, also weakened considerably from the end-year forecast, with 0.5 percent growth expected for full-year 2015, rising to 1.8 percent in 2016. The median forecast for the core PCE chain price index was 1.3 percent for full-year 2015 and 1.7 percent for full-year 2016.

The outlook for core inflation remains moderate for 2015 and 2016. Over 70 percent of respondents expect core inflation to remain between 1.3 percent and 1.6 percent by the end of 2015. For 2016, 83 percent of respondents expected core PCE inflation to remain between 1.5 percent and 2.0 percent by the end of 2016.

Economic slack/employment was the dominant factor in the core inflation outlook, as in prior surveys, followed by the strength of the U.S. dollar and commodity prices pass through.

Interest Rates:

The median survey forecasts for 10-year Treasury rates were 2.20 percent in June 2015, 2.30 percent in September 2015, 2.50 percent in December 2015, 2.60 percent in March 2016 and 2.78 percent in June 2016. Roughly two-thirds of respondents expect the Treasury yield curve to flatten by the end of 2015.

Risks to Growth: Global Economic Growth, Corporate Capital Expenditures on the Upside; Weak Consumer Spending, Global Slowdown on the Downside

FOMC rate policy was considered the most important factor on U.S. economic growth, followed by private credit market conditions and business confidence, although one respondent considered the “release of pent-up demand by U.S. consumers” to be among the most influential factors to growth in the second half of 2015.

Upside and downside risks to the growth forecasts varied considerably among respondents. The impact of the global economy was the most frequently cited upside risk as well as the second most cited risk to the downside. Other upside influences included capital expenditure and wage growth.

On the downside, weak consumer spending was the most frequently cited downside risk to the economic outlook. To a lesser extent, “taper tantrums” from Fed hikes, weak business investment and a strong dollar trailed global economic slowdown as other downside risks to the economic outlook.

Policy-Related Issues:

Resolution of corporate tax reforms and immigration reform were noted as the two pending policy issues with the greatest potential impact on the U.S. economy, followed distantly by positive resolution of “fast track” authority. Other issues that respondents felt would merit a positive impact were income tax reform/flat tax and resolution of the debt ceiling.

Respondents were far more negative than in the previous survey about the impact of concern or uncertainty over the direction of financial regulatory policy on 2015 economic growth: three-fourths of respondents now estimate a negative impact of up to 50 basis points, compared to year-end 2014 when two thirds of respondents estimated no impact.

Oil Prices:

Panelists placed a 60 percent chance on WTI oil prices remaining between $55 and $75 a barrel in the remainder of 2015, with the balance split between prices moving higher or lower from this range. Relative to a scenario where oil prices had remained at $100 a barrel in 2014 and 2015, respondents estimated that the most likely scenario – oil prices remaining in the $55 and $75 per barrel range – had boosted growth by 40 basis points.

The full report is available at the following link: http://www.sifma.org/eoutlook20151h/