Changes to the Moody’s Analytics outlook for the U.S. economy were modest in January, with many adjustments resulting from revised historical data and changes to monetary policy assumptions.
View Comparison Table: U.S. Macro Forecast M/M Comparison
A tabular comparison of the current and prior vintages including an assessment of whether meaningful changes can be attributed to new or revised data, changed assumptions or model changes.
National income
U.S. GDP growth ticked slightly higher in the third quarter of 2019, according to the third report from the Bureau of Economic Analysis. Real GDP expanded 2.1%, up from 2.0% in the previous quarter but down from the 3.1% annualized gain registered in first quarter of 2019. Strength in personal consumption expenditures and fixed residential investment was partly offset by weakness in fixed nonresidential investment and softer growth in government spending.
The forecasts for several GDP components changed this month in response to revised history as well as adjustments in our forecasts for interest rates over the next several quarters. Moody’s Analytics expects GDP to grow 2.3% in 2019 when all four quarters of data are reported, virtually identical to last month’s forecast. Growth will decelerate to 1.8% and 2.0% in 2020 and 2021, respectively.
Fiscal policy
The forecast for government consumption and investment shifted slightly, stemming from historical revisions and changes in the forecast for topline GDP. We expect government consumption and investment to grow by 2.7% in 2020, the same rate as in the December 2019 baseline vintage.
Monetary policy
Our federal funds rate forecast changed modestly. Based on updated forward guidance from the Federal Reserve, we removed the 25-basis point cut that we had previously expected to take place in June 2020. Our current baseline forecast projects that the federal funds rate will hold flat throughout 2020, averaging 1.6 percent.
Labor market
Our unemployment rate over the next several forecast quarters remained stable on balance relative to the previous baseline vintage. The jobless rate will average 3.5% in 2020 and 4.0% the following year. The forecast for total employment held steady. Job additions are expected to continue through the middle of 2020.
Energy
The forecast for WTI oil prices has changed modestly compared with the previous forecast vintages as a result of new historical data and heightened tensions with Iran. Our forecast accounts for weakness in global oil demand, leading to surpluses in the first half of 2020, despite significant declines in exports from Iran. Such market conditions will put downward pressure on near-term prices. Moody’s Analytics expects oils prices to average near $60.18/barrel in 2020 and $61.29/barrel in 2021.
Inflation
The forecast path for home prices did not experience any meaningful changes from the previous forecast vintage, while the forecast path for CPI shifted slightly due to changes in the outlook for oil prices. Moody’s Analytics currently expects 2.3% CPI growth in 2020, followed by a 2.4% increase the following year. Meanwhile, the FHFA All Transactions Home Price Index is expected to rise 3.5% in 2020 and 3.1% in 2021.
Population
The forecast for U.S. population changed this month as the result of revised historical data. The last historical data point for total U.S. population (2019Q2) came in roughly 1,000,000 people below our forecast estimate due to a combination of weaker-than-expected births and net migration, plus downward revisions to historical Census Bureau population data. The January forecast features updated projections of birth and death rates, which have reduced the total U.S. population by 1.7 million people in 2050Q4.
CCAR variables
The only stochastic CCAR variable that received a qualitative overlay this month was the 10-year Treasury rate. It was altered to align more closely with our assumptions for monetary policy and our assumptions for the pace of normalization, which shifted from the previous forecast vintage because of recent history. Our current forecast path projects a slower normalization of the 10-year Treasury yield, relative to the December 2019 baseline, with the rate returning to the 4% equilibrium by the end of 2023. The January baseline shows the 10-year Treasury yield averaging around 2.2% in 2020 and 2.7% in 2021.
Changes to Historical Data: Global Macro Model Historical Data Changes
A summary of this month’s major changes to historical dataset(s) used in the global model.