SIFMA’s Economic Advisory Roundtable today unveiled its outlook for full year 2012 and 2013, forecasting that the economy grew at a 2.2 rate in 2012 and will grow at a rate of 1.9 percent in 2013.
“The Roundtable has slightly lowered its forecasts for U.S. growth in 2013 to 1.9 percent from 2.1 percent predicted in the 2012 midyear forecast, with concerns over the country’s fiscal policy dominating the 2013 outlook,” said Kyle Brandon, managing director, director of research at SIFMA. “Resolution of fiscal policies and the recovery of the real estate market were the most oft-cited upside risks to the forecast, while Eurozone issues remain downside risks to the forecast.”
The Economy:
The median forecast called for gross domestic product (GDP) growth to be 2.2 percent in 2012 on a year-over-year basis, and 1.9 percent on a fourth quarter-to-fourth quarter basis. For 2013, GDP growth was expected to remain subpar in the first quarter, at an annualized 1.3 percent, before recovering and rising steadily to an annualized 2.8 percent in the fourth quarter of 2013. Approximately two-thirds of respondents expected the continuing European debt crisis to impact U.S. GDP growth in 2013 somewhat, although the balance expected little-to-no impact.
Unemployment was expected to remain at elevated levels throughout 2013, similar to those forecasted in mid-year 2012. Survey respondents expected the full-year average unemployment rate to have been 8.1 percent in 2012 before declining to 7.7 percent in 2013. Full-year 2012 non-farm payroll employment gains were estimated to have reached 1.8 million jobs, with the same gains expected for 2013.
The median forecast for “headline” inflation, measured by the personal consumption expenditures (PCE) chain price index, was 1.8 percent for full-year 2012 and 1.6 percent for full-year 2013. The median forecast for the core PCE chain price index was 1.7 percent for full-year 2012 and 1.6 percent for full year 2013.
Monetary Policy and Rate Forecast:
The Roundtable expected the FOMC to maintain its 0.0 to 0.25 percent federal funds target rate throughout 2013. Half of the respondents expected the Treasury yield curve to remain the same through mid-year 2013, with 44 percent forecasting it would steepen.
U.S. Economic Growth: Housing Dominates Upside, Eurozone Downside:
The resolution of the U.S. budget and deficit reduction issues took center stage for promoting GDP growth in 2013, with approximately half the respondents considering it the most important factor, followed by normalization of private credit markets.
The resolution of the fiscal cliff and policies, along with a recovering real estate market, were the most oft-cited upside risks to the economic forecast. Other factors cited were improved consumer spending, improved market conditions, the resolution of the Eurozone crisis, and lower oil prices.
The continuation of the fiscal budget issues, along with the continuing risk from the Eurozone, were the dominant factors on the downside. Respondents noted that fiscal austerity resulting from a more onerous fiscal cliff resolution could also play a factor to the downside.
Four-fifths of respondents believed that the uncertainty over the “fiscal cliff” lowered GDP growth by up to 100 bps in the last six months of 2012; the same proportion of respondents also expected fiscal cliff-related uncertainty will lower growth by up to 100 bps in first half 2013. Although the fiscal cliff had been in part resolved, one respondent noted that the debt ceiling/budget fight would be “messy and distracting.”