NABE Reduces Growth Forecasts Again

The National Association for Business Economics reduced its forecast for real GDP growth in 2022 to 0.1% (Q4/Q4) from 1.8% expected in May (Q4/Q4). For 2023, expected growth also was reduced to 1.1% from 2.1%. Quarterly, GDP is expected to rise 1.3% in Q3'22 and 1.5% in Q4 after declining in both quarters earlier in the year. Personal consumption expenditures are forecast to grow 2.4% this year, revised from 3.0%. Expected growth next year also was reduced to 1.3% from 2.2%. Business fixed investment is expected to rise 4.3% this year, revised from 6.0% while the expected 2023 rise was reduced to 2.0% from 3.9%. An expected decline in residential investment this year of 7.7% compares the earlier expectation for a 0.4% rise and a 6.3% decline in 2023 was reduced from a 1.3% gain. Government spending growth is now expected to decline 1.5% this year, revised from -0.5%, and to rise 0.8% in 2023, revised from 1.5%.

The net export deficit is expected to deepen to a record in 2022 then marginally narrow in 2023. Exports should rise 6.5%, revised from 4.6%, in 2022. Growth in 2023 should slow to 3.7%, revised from 5.3%. Import growth should pick up to 9.0% this year, revised from 9.5%, then slow to a little-revised 1.4% next year. Accumulation of inventories is expected to slow to a greatly lessened $99 billion in 2022 from a lessened $41 billion in 2023.

Housing starts are forecasted to hold steady this year at 1.57 million units, revised from 1.66 million, then fall to 1.42 million in 2023, revised from 1.55 million. Light vehicle sales are projected to fall to 14.0 million, revised from 15.1 million, then rise to 15.0 million next year, revised from 16.5 million. Sales will remain below the 2016 peak of 17.5 million. An average monthly gain in payroll employment of 348,000 this year was revised from 369,000 while next year's expected increase was revised to 80,000 from 151,0000. Expectations for the unemployment rate place it at 3.7% this year, revised from 3.6%, and it should rise to 4.0% in 2023, revised from 3.6% projected in March.

Inflation pressures should strengthen. The Consumer Price Index is projected to rise 7.2% (Q4/Q4) this year, revised from 5.6%, then rise 2.7% in 2023, revised from 2.6%. Price inflation year, as measured by the PCE price index, is expected to surge to 5.5%, revised from 4.8%, then slow to 2.7% In 2023. The chain PCE price index excluding food & energy should rise 4.4% this year, revised from 4.2%, then slow to 2.7% in 2023, revised from 2.5% expected earlier. The cost of crude oil is expected to average $91, revised from $98 at the end of this year, from a little revised $84 per barrel at the end of 2023.

Interest rates are expected to rise more than anticipated earlier. The forecasted 3.53% rate on a ten-year Treasury note at the end of this year compares to the May forecast of 3.06%. The 3.45% rate at the end of 2023 compares to 3.25% expected in May. The Federal funds rate is projected to rise to 3.88% at the end of 2022 compared to the May expectation of 2.38%. The projected rate at the end of next year of 3.88% compares to 3.00% expected earlier. After-tax corporate profits should rise 7.2% this year, revised from 4.0%, then ease 0.1% next year, revised from a 2.4% gain. The expected Federal government budget deficit should fall to $988 billion, revised from $1.200 trillion, then total $1.084 trillion in 2023, revised from $1.003. The deficit hit a peak of $3.132 trillion in 2020.

The figures from the latest NABE report can be found in Haver's SURVEYS database.